Ppp Loan For Startup Business – Businesses can apply for a Paycheck Protection Program loan through May 31, 2021. Beginning June 1, 2021, the SBA will no longer accept applications for PPP loans.
Congratulations on getting a forgivable Paycheck Protection Program loan! However, if you want to get loan forgiveness, you must use it for eligible expenses and keep detailed records.
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Keep in mind that the primary goal of the PPP loan is to keep employees on the payroll. So you must use at least 60% of your loan for salary expenses and 40% or less for qualifying non-salary expenses.
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You can also use your OPS loan funds to cover other expenses. However, the part of the loan you use for ineligible expenses cannot be forgiven.
When you use the PPP loan to cover eligible expenses, you must register it. And if you use your OPS loan to cover ineligible expenses, you must register it.
To ensure that your PPP loan is forgiven, you must keep your records up to date. Before you start accounting for your PPP loan, check out these five tips.
As a business owner, it is good to have a separate business bank account. And you should do the same for a PPP loan.
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To keep your PPP funds and transactions organized, consider setting up a separate bank account for the PPP loan money you receive. A separate account allows you to easily demonstrate that your company used PPP funds for eligible expenses (eg salary costs). Not to mention, a separate PPP loan account will help simplify the PPP loan forgiveness process.
Another way to organize your PPP funds and transactions is by taking advantage of accounting software to track and segregate PPP loan transactions.
You can use a separate expense account to record eligible expenses. Before committing to the software, make sure it can track PPP loan information.
Even if you don’t track PPP loan expenses or plan to take out a loan, accounting software can be a useful tool for your business.
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Since loan forgiveness is not taxable, you want to make sure you separate your business income and PPP loan income.
Again, you can do this by opening a separate bank account. If you don’t want to go through the process of opening an extra account, enter PPP income when you update your books and mark transactions accordingly.
Mixing business income and PPP loan income can not only make your books sloppy, but it also makes it difficult to track loan forgiveness transactions.
When it comes to the PPP loan, the more records you track, the better off your business will be when it comes to loan forgiveness.
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Your business may end up getting more PPP loan money than you need. If this happens, you can either:
If your company needs to do any of the above because you have unused PPP funds, record the transaction on your books and keep all documentation in your records for safekeeping.
Reporting an OPS loan can be an overwhelming process. You may be asking yourself a number of questions, such as
To learn more about the PPP loan accounting process, take a look at how to record PPP transactions in your books below, plus examples.
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When you get a loan, you increase your company’s funds and liabilities. To reflect this increase, debit an asset account (your bank account) and credit a liability account.
Again, strongly consider segregating your PPP funds for clearer record keeping. For example, your debt account may be called a PPP loan account.
Whichever accounts you choose to use, debit your bank account for the loan amount and credit your debt account for the loan amount.
If you separate funds, your bank account will be a dedicated PPP loan bank account. If you do not separate funds, your bank account will be your regular bank account (eg Checking).
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Do not touch your PPP loan due (debt account) unless your lender tells you your loan is forgiven or at the time repayment is required. If your loan is fully or partially forgiven, you will create a journal entry that writes off the forgivable portion (shown below).
When you use PPP loan funds to cover expenses—forgivable or not—you must record it in a journal entry.
How you register the item depends on whether you create a separate OPS loan account or add the OPS loan funds directly to your regular bank account.
Again, setting up a separate bank account for your PPP loan is a good idea for easy tracking. If you can create a separate bank account for your PPP loan, you will create two journal entries.
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Use your regular bank account to pay expenses. Then transfer the appropriate PPP loan funds from your PPP account to your regular bank account to cover them.
Your first journal entry will debit the appropriate expense account (eg salary, mortgage interest, rent or utility). And you credit your regular bank account (eg Checking), which is an asset account.
Let’s say you have a rental expense of $2,500. Your first journal entry debits your Rent Expense account for $2,500 and credits your regular bank account, Checking, for $2,500.
Your second journal entry records the transfer you made to top up the funds in your regular bank account by transferring funds from your PPP loan account.
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Now you will increase the cash in your regular bank account and decrease the cash in your PPP loan account. Debit your regular bank account (eg Checking) and credit your PPP loan account to reflect this. Both are asset accounts.
Using the $2,500 rent expense example, your second journal entry debits your regular bank account for $2,500 and credits your PPP loan account for $2,500.
If you are unable to open a new bank account for your PPP loan, your journal entries will look a little different.
Create a journal entry to record expenses that you are using the PPP loan to cover. Your expense account should be specific to the covid-19 expense. Create a separate expense account name for proper tracking.
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Since your PPP loan funds are commingled with your other funds in a bank account, pay extra attention to your spending on loan proceeds. Consider keeping a running total of how much loan proceeds you’ve used so far in a separate spreadsheet.
Debit your covid-19 expense account and credit your regular bank account. Again, let’s say you have a rental expense of $2,500. Your journal entry would look like this:
Salary costs are a bit more involved than mortgage interest, rent and utility costs. However, since salary expenses must make up 60% of your PPP loan expenses for forgiveness, we’ll take a look at a salary example.
Let’s say you have a total of $20,000 in payroll expenses during a biweekly pay period. How you book your payroll expenses may depend on whether you pool all expenses into a covid-19 payroll expense account or separate them by type.
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If you aggregate all of your payroll expenses under a Covid-19 Payroll Expense account, your journal entry would look like this:
However, if you separate your salary-related expenses, you need two journal entries. You can separate your salary expenses using the following types of accounts:
This would be a good idea to do for more detailed record keeping. First, you debit your general payroll expense accounts and credit your bank account.
Next, you would create a reclassification record for easy reporting when the 24-week loan period is over. To do this, debit a Covid-19 Payroll Expense account credit all payroll related expense accounts that would be affected.
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For the PPP loan, interest starts to run from the date your company receives money. As a reminder, the interest rate is 1%. If you get an OPS loan, the loan payments are postponed for six months with interest during the six-month period.
If you retain employees and maintain wage levels, the Small Business Administration (SBA) will forgive part or all of the principal amount of your loan, plus accrued interest.
PPP Accrued interest = Loan amount X 1% X (number of days from loan date to end of month / 365)
To record accrued interest on your books for the PPP loan, debit your interest expense account and credit your accrued interest account (which is a liability account).
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Many companies record accrued interest at the end of the month and include interest accrued up to that month’s end date. Record accrued interest for your PPP loan during your monthly closing process.
Say you got a loan for $100,000. You received the loan amount on April 15. When you post the loan on April 30 (15 days later), the accrued interest would be $41.10 for the month of April.
Loan amount X 1% X (number of days from loan date to the end of the month / 365)
You must debit your interest expense account $41.10 and credit your accrued interest account $41.10. This is how your accrued interest journal entry would look:
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For the month of May, your accrued interest would be $84.93 ($100,000 X 1% X (31/365) = $84.93). For June, your accrued interest would be $82.19 ($100,000 X
