You might wonder how to account for it if you’ve received a Paycheck Protection Program (PPP) loan, however. Although it’s theoretically a loan, the forgiveness aspect means the financing is also considered a grant.
This is certainly familiar territory for nonprofits but a unique situation for non-government, for-profit entities. And U.S. generally accepted accounting procedures (GAAP) don’t cite any specific guidance for organizations.
The Association of Global Certified Public Accountants (AICPA) has released some announcements about this matter, including a technical q&a (TQA 3200) given in June. Financial Accounting Standards Board (FASB ) and International Accounting Standard (IAS) also have released guidance.
Having said that, the most suitable choice for your needs hinges on your specific situation. Here you will find the fundamentals.
Choice 1: Treat the Loan as Debt
This tends to function as the selection of many companies that took away PPP loans through the U.S. small company Association (SBA). In the event the business hasn’t yet gotten PPP loan forgiveness approval, it is most likely a less strenuous choice. Involving the 60-day approval screen for banking institutions together with subsequent 90-day duration for SBA, forgiveness prior to the end of the season becomes more unlikely with every passing day.
Once you treat your PPP loan as financial obligation, it is named a monetary obligation (with interest accrued) on your balance sheet. The amount received through the SBA must certanly be shown being a money inflow from funding activities.
While this seems easy enough, treating your loan as debt presents a possible issue—debt that is new violations. ...