Organizations should review all the options to determine what may be most advantageous from a funding perspective. How is the process of applying for a PPP loan different for a nonprofit? Any amount of a borrower’s PPP loan that is not forgiven will remain an obligation that must be repaid and, therefore, should be reclassified to a note payable with interest expense recorded, based on a rate of 1% per annum or .08% per month, from the date the loan was originally issued. Billy provides client services in the educational institution, nonprofit, governmental and single audit practice areas. Billy joined Warren Averett in 1998 and is a Member in the Firm’s Audit Division. However, there is some unofficial guidance from the Center for Plain English Accounting (CPEA), which is the AICPA’s National A&A Resource Center and the information below is based on that unofficial guidance. Those funds are placed in the entity’s checking account, increasing cash. Regardless of whether your NFP entity expects to repay the PPP loan or believes it represents a grant that is expected to be forgiven, you may account for the loan as a financial liability in accordance with FASB ASC 470 and accrue interest in accordance with the interest method under FASB ASC 835-30. The steps to account for the PPP funds as a conditional contribution in accordance with ASC 958-605 are summarized below. Over the past several weeks, we have followed closely the discussions in the accounting world pertaining to various accounting methods, all seemingly acceptable, for CARES Act Paycheck Protection Program (PPP) loan program funds. How To Handle The Funds Ideally, you would open a separate bank account specifically for the PPP loan funds. For NFPs that expect to repay their PPP loan, the loan should be accounted for in accordance with FASB ASC 470, Debt which requires the loan to be reported as a liability (debt) and for related interest to be accrued and also reported as a liability. With the beginning of the CARES Act, our firm established a library of aids, mostly concentrated on the Paycheck Protection Program (PPP), to help beings, including nonprofit organizations, steer the post-pandemic setting. Accounting Options for Nonprofit PPP Loan Forgiveness. Their loan representatives were well-informed and transparent about what’s really happening behind the scenes. Therefore, if a borrower anticipates this interest amount (accruing at 1% per annum or .08% per month) to be material to the financial statements, the borrower should record this expense and the related accrual. 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. Whether you’re looking for help with corporate accounting, specialized audits or other business solutions, Warren Averett can solve your most challenging problems and help you thrive and accomplish more of what’s important to you. Warren Averett is a top accounting firm providing audit, tax, accounting and consulting services to companies across the Southeast. Many nonprofit organizations are asking about the proper accounting for Paycheck Protection Program (PPP) proceeds. Special PPP loans available for small, nonprofit businesses. In a recent communication from the SBA, it was announced that “the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate.” To assist with documentation, we have put together a, Following the eight-week measurement period, submit a. Home Resources Blog PPP Loan Accounting Considerations for Nonprofit… As many nonprofit organizations have received PPP loan funds and will be requesting loan forgiveness, we wanted to share a couple of articles with our clients that discuss the accounting for these funds. A business or a nonprofit can record the PPP funds as a loan using ASC 470. Here’s some advice for how your nonprofit can record their PPP loan. The guidance suggested that a nongovernmental entity (including not-for-profits, “NFP”) may account for the PPP loan as a financial liability in accordance with FASB ASC 470, Debt, if certain conditions are met. If you have questions about your organization’s PPP loan forgiveness calculations and accounting, please contact your local Blue & … The AICPA issued guidance for nongovernmental entities on accounting for forgivable Paycheck Protection Program (PPP) loans in accordance with accounting principles generally accepted in the U.S. In June 2020, the AICPA issued Technical Question and Answer (TQA) 3200.18, Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program, and in July 2020, GASB issued Technical Bulletin 2020-1, Accounting and Financial Reporting Issues Related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Coronavirus Diseases. PPP Loan Accounting Tip #2: A Real Accounting System A related suggestion: Maybe you should also use the whole PPP loan thing as the prompt to step up to a real small business accounting program: Quicken, Xero accounting, QuickBooks, FreshBooks, and so on. When you receive a loan, you increase your business’s funds and liabilities. © 2021 Warren Averett CPAs & Advisors. How to Account for Your Nonprofit PPP Loan. Update on nonprofit accounting for a PPP loan. Accounting for PPP loans for not-for-profit organizations will fall under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 958, Not-for-Profit Entities. With the introduction of the CARES Act, our firm created a library of resources, mostly focused on the Paycheck Protection Program (PPP), to help entities, including nonprofit organizations, navigate the post-pandemic environment. ... Read More →, Employee Retention Tax Credit (ERTC) Expansion and Extension [What Companies Should Know], Written by Branden Crosby on February 4, 2021, Audit Procedures for Pension Plans: Guidelines and Pandemic Impacts, Written by Missy Herbert on February 3, 2021, Upcoming Health and Safety Reporting Deadlines that Organizations Need to Know, Written by Dianne Wilson on January 22, 2021, New SBA Guidance Issued: PPP Program and PPP Second Draw Loans, Written by Van Trefethen and Adam West on January 8, 2021. The guidance suggested that a nongovernmental entity (including not-for-profits, “NFP”) may account for the PPP loan as a financial liability in accordance with FASB ASC 470, Debt, if certain conditions are met. As discussed in a previous blog, nonprofit organizations commonly receive below-market or interest-free loans. If you need to repay any portion of the PPP loan, code the repayment to the PPP loan account. PPP Loan Accounting Considerations for Nonprofit Organizations Sep 18, 2020 | B&V Happenings As many nonprofit organizations have received PPP loan funds and will be requesting loan forgiveness, we wanted to share a couple of articles with our clients that discuss the accounting … All examples use QuickBooks as the accounting software, so modify accordingly if you or your clients use a different program. Ultimately, the organization, possibly after consultation with an auditor or business advisor, will need to make this “substantially met” decision based on the organization’s unique facts and circumstances. First you will record the deposit from your lender as a Loan Payable under your liabilities section on the balance sheet. The PPP loan proceeds would be recorded as a liability – like any other bank debt – and interest would also be recorded. However, given the recency of the CARES Act, there is no traditional way of accounting for PPP Loans within nonprofit guidance. Costs associated with obtaining the PPP funds, if material, may be set up as a deferred financing cost which reduces the carrying amount of the debt. On April 23, 2020 the U.S. Treasury Department issued FAQs about the Paycheck Protection Program (PPP). Instead, we will focus on entries to make in accounting software once you have received the PPP loan disbursement and started spending the funds. Twitter. Most nonprofit employers may receive a second loan if they meet certain criteria: Fewer than 300 employees Has or will use the full amount of their first PPP loan A 25% drop in gross receipts from one quarter in 2020 as compared to the same quarter in 2019. You may need to create a new income account in your chart of accounts. You may think the accounting for PPP funding would be straight forward, but unfortunately, it is not. Access more resources for nonprofit entities navigating COVID-19 here. PPP Loans Nonprofit Nightmare – April 13, 2020 confirms what every nonprofit has been experiencing since the Federal $349 billion Payment Protection Program (PPP) launched on April 3rd. What’s Brewing? Management’s accounting policy for determining imputed interest on interest-free loans should be disclosed. Debt . Round 3, now rolling out, includes updated forgiveness and tax rules, and is available to both first-time applicants and returning borrowers. Tax treatment of PPP loans Regardless of the financial accounting classification, PPP loans are treated as debt for federal income tax purposes. PYA will be helping our clients with the PPP loan forgiveness provisions. If a nonprofit expects to meet the PPP’s eligibility criteria and views it as a grant that will be forgiven, to account for the loan, the nonprofit may account for the PPP loan as a conditional contribution rather than a financial liability by: initially recording the cash inflow from the PPP loan as a … For any portion of the PPP loan that is not expected to be forgiven, not-for-profit organizations should account for the non-forgivable portion of the loan using guidance under ASC 470. G/L account Debit Credit Cash $1,000,000 PPP loan $1,000,000 And don’t forget, the monthly interest o f 1% should be accrued: G/L account Debit Credit Interest expense $1,000 PPP loan accrued interest $1,000 Business Entities . Your organization may have received a loan under the Paycheck Protection Program (PPP). PPP Loan Accounting Tip #1: A Good Payroll System (Probably a Payroll Service) ... Next, as a nonprofit, how and where would we book the loan forgiveness? Contact Marie Brilmyer at mbrilmyer@cohencpa.com or a member of your service team to discuss this topic further. 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. Posted By: David Bell February 24, 2021. Jessica Rolfe, CPA CPAs & Business Consultants . [And Why It’s Important and Who Needs to File One], National Clean Out Your Computer Day [What it Actually Means in 2021]. Portions of the PPP loans may also be accounted for under the … Within U.S. GAAP, there is no specific guidance on accounting for government loans or grants in the for-profit arena. The PPP loans may be partially or fully forgiven if employees are retained and funds are used for eligible expenses. 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