[US] COVID-19: How to bookkeep your PPP loan

SystemSystem Posts: 355 admin

image[US] COVID-19: How to bookkeep your PPP loan

If you’ve received a Payroll Protection Program loan (PPP), here’s how to bookkeep it, from start to finish.
The PPP is a loan program offered through the Small Business Administration which is up ...

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edited May 1, 2020 in Help Center Discussion

Comments

  • sprouttnsprouttn Member Posts: 1

    For recording expenses and owner's drawings paid using loan proceeds, what would be the optimal way to record these transactions for simplified reporting to our SBA lender? Should we record a transfer out of the PPP loan account that offsets the expense from the cash account?

  • BarsinABarsinA Administrator Posts: 1,407 admin

    Hey there @sprouttn

    This article shows you how to account for loans in Wave however it depends on whether your accounts are connected to the same bank. When it comes to using equity to pay these loans you can add transactions from your transactions page and set the account to an "owners equity account", then categorize the loan accordingly. This can also be done with journal transactions!

    I hope this helps but don't hesitate to reach out if you have other questions!

  • pseudeeppseudeep Member Posts: 2

    This is very helpful. Could you please also publish an article outlining how to bookkeep the expenses correctly for the PPP loan?

  • crhoadscrhoads Member Posts: 1

    How should we show paying payroll expense from PPP loan? We currently have our PPP money in our business checking account and use Wave Payroll.

  • LauraM1LauraM1 Member Posts: 2

    I'm a little confused. I followed the instructions for recording the loan money as it came in. But it created an opposing transaction, categorizing the loan as a "transfer". So now it looks like the money came in AND went out, even though it's still sitting in the checking account. Is there a way to categorize it as a loan without having it be a transfer.

  • kwp_2020kwp_2020 Member Posts: 1

    Hello
    Question for Sole Proprietorship. I dont use payroll. I usually just transfer from business checking to personal checking and mark as owner withdrawal. Now having the PPP loan, I followed the initial deposit directions and created a new loan or line of credit account. I have transferred first weeks "payroll" from business checking to personal account. How should I categorize that? I feel like there are too many accounts for this now. Should I categorize the transfer as "W2 Income"?
    Please help!!

  • Colleen_LionHeartColleen_LionHeart Member Posts: 9

    Thank you, it would be very helpful now, as other commenters have mentioned, to have instruction on how to record expenses, especially the owner's draw which is how we sole proprietors pay ourselves. We also need a guide on how to record expenses against this loan. I understand from my "tax guy" that we can use this for an IRA, phone or internet as part of what is forgiven.

    I'm particularly interested in how this "income" won't show up as taxable income at the end of the year, and how to protect the expenses as non-taxable expenses. Thank you! I know instructions from the SBA are still evolving and I appreciate the guidance you've already provided.

  • Colleen_LionHeartColleen_LionHeart Member Posts: 9

    I just got off the phone with my accountant and got some information about how to record the owner's draw and expenses against the PPP loan amount. He recommended I do the regular transfer out of my business account into my personal account and mark that transaction as:
    description: PPP owner's draw
    deposit type: withdrawl (somewhat obviously)
    category: PPP Loan (which is the new account type I added per Wave's instructions)

    Hope this helps other people with the same question. I will also do the same with the monies I use to fund my SEP IRA, which is permissible under US IRS guidelines.

  • BarsinABarsinA Administrator Posts: 1,407 admin

    Hey there @crhoads

    The payroll expense should be accounted for as usual - the expense will come out of the bank account used to pay payroll, and at this point, does not interact with the PPP loan account at all. For forgiveness purposes, you will need to track the amount of payroll expense (and other qualifying costs) paid in the 8 week period from when the PPP loan funds were received. Once the application for forgiveness is processed by the lender, you can write off the amount forgiven, accrue interest, and record loan payments (if necessary) per our instructions. But the important thing to note is that the PPP loan account represents the total amount of the loan received, and that balance won't change until forgiveness is calculated and processed, and interest and payments are applied.

    Hi @LauraM1 @Colleen_LionHeart

    We think this question is related to how the transactions appear on the Transactions page. Both the checking account and the loan account will appear on the transactions page, so it looks like there are 2 transactions (transfer in and transfer out) but it's just both sides of the same transaction. If you filter the transaction page to only the PPP loan account or only the bank account it was deposited into, it will look "correct" because only one transaction will appear.

    Hi @kwp_2020

    For the sole prop, same answer as given to @crhoads - it can be recorded as an "owner withdrawal" just like usual. It's not clear yet what documentation a sole proprietor who doesn't file Form 941 will be able to use to apply for loan forgiveness.

    edited May 22, 2020
  • LauraM1LauraM1 Member Posts: 2

    Thanks @BarsinA but I get the idea of transactions coming in and out.... when they are things that come in and out. Why would money I received from an entirely different entity have a transaction for the other side? When a customer pays me for a product, another transaction for the same amount doesn't suddenly appear in my Wave account to cancel out the sale. That wouldn't make any sense. The PPP loan is effectively the same thing at this point - money in, but not money out. Why would there be a transfer out recorded in any way. And really, why would it even be called a transfer?

  • AlexLAlexL Administrator Posts: 1,733 admin

    Hi @LauraM1 , it sounds like you're having trouble with the wording of "transfer" specifically. This is how we word it to make it easier for a lot of our users who aren't accounting proficient, and in this case it ultimately just represents a credit to the loan account and a debit to the bank account.

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