Accounting for PPP and EIDL in Your Business
Last year, many small business owners received loans and grants as relief for the COVID-19 pandemic. For many businesses, this is the first time they have received and needed to record something like this. When inputting the necessary information, accounting software like QuickBooks may not realize what you are trying to do and can make incorrect entries.
There are a few things you should check to ensure everything is entered properly. Begin by running a Balance Sheet as of 12/31/20 and a Profit and Loss (P&L) statement for the year.
Here’s what you should see:
PPP loan still unforgiven? This should be a liability account titled something like “PPP Loan” or “PPP Deferred Grant Revenue” (if you anticipate forgiveness in 2021). If you are an accrual-basis taxpayer, you will also want to accrue any interest owed as of 12/31/20.
PPP loan forgiven? This should be on the P&L under other income. It is helpful to create an account called “Grants” or “PPP Grant.” If you are reasonably sure you will be receiving forgiveness, you can also go ahead and put this in other income in 2020.
EIDL Loan? This should be on the balance sheet under liabilities. It’s helpful to create an account called “EIDL Loan.” If you are an accrual-basis taxpayer, you will also want to accrue any interest owed as of 12/31/20.
EIDL Grant? This should be on the P&L under other income. It’s helpful to create an account called “Grants” or “EIDL Grant.”
State or other grant? This should be on the P&L under other income. It’s helpful to create an account called “Grants” or “State Grant.”
As a reminder, a forgiven PPP loan is NOT taxable for federal purposes, but it is likely taxable for State purposes. EIDL grants will also be treated the same way. Grants from the State or other entities will likely be taxable on your Federal return. State rules will vary. Expenses paid for by any of the loans or grants may be deducted as well as any interest paid on the loans.
Questions on how to record these loans and grants – or how to correct the entries that were made? Reach out to us and schedule a free consultation.