Your organization may have received a loan under the Paycheck Protection Program (PPP). Now that you have begun expending those funds, you may be wondering the appropriate way to account for them. Unlike for-profit entities currently, not-for-profit accounting already has clear guidance in place on accounting for loan forgiveness. Below are the three primary areas to consider.
It is important to distinguish your PPP loan was passed through banks, but that the funds came from the government. Accordingly, your not-for-profit should treat the funds as government grants for accounting purposes, which are addressed in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 958-605. ASC 958-605 states that contributions include the “cancellation of liabilities,” in other words, forgiveness.
To recognize a contribution, certain conditions must be substantially met. For qualifying PPP expenses, these conditions are met over time or in stages, as the qualifying expenses are incurred.
Read more details on the program in “Expansion of SBA 7(a) Loan Program Offers Paycheck Protection for Businesses”
For example, let’s assume your organization received $100,000 in PPP loan proceeds on April 30 and paid $25,000 for payroll expenses on May 15. Upon receipt of the funds, you would record the cash and the corresponding refundable liability. Upon expenditure, you would record:
|
Cash |
Decrease of $25,000 |
|
Payroll Expense |
Increase of $25,000 |
|
Refundable Liability |
Decrease of $25,000 |
|
Contributions |
Increase of $25,000 |
The example assumes the $25,000 of payroll expenses are deemed to be qualifying expenses for forgiveness under PPP. If you determine that all or a portion of the PPP loan will not qualify for forgiveness, you must accrue interest expense for the portion of the loan you expect to be repaid.
Finally, it has been clarified that PPP loans will not be considered federal expenditures for Single Audit purposes.
If your not-for-profit has received, or expects to receive PPP funds, stay in close contact with your accounting team to ensure you are accounting for the funds properly.
Contact Marie Brilmyer or a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.