AICPA Provides Guidance on Accounting for Payroll Protection Program Loans

As the saying goes, nothing worth having comes easy. The popularity of the Paycheck Protection Program demonstrates that many people believe the PPP loan is worth having. It has allowed millions of people to continue to receive a paycheck during these uncertain times. That being said, it has not been easy! The initial application process and the loan forgiveness calculation have evolved through various stages of uncertainty and confusion in the past couple of months as the SBA has sent $5 billion to 4.5 million businesses in a matter of two months.

Of lesser consequence, and yet still important, has been the uncertainty around how businesses should record their PPP loans. Is it a loan? Or since I expected forgiveness at the time of application, is it more of a grant from the government? When it is recognized on my income statement, will it be shown as other income, reduce my payroll expense, or above the line as a contribution? While there are no easy answers to these questions, the AICPA has responded** with some helpful clarifications which we will outline in this article.

Let’s start with those of you in the not-for-profit world since the answer is a little more straightforward for you. You have to make a decision here: do you believe your PPP loan is akin to a loan? This is not a trick question, and there is no wrong answer.

  • FASB ASC 470 – If you believe treating your PPP loan as debt is best, than you should record a loan upon receipt. If some or all of your loan is forgiven, you reduce your debt balance and record that amount as “other income.”
  • FASB ASC 958 – If you choose to take the position that your PPP loan is not a traditional loan and should therefore not be recorded as one, you will record a refundable advance until the conditions have been met (i.e. PPP loan forgiveness). If your PPP loan is subsequently forgiven, you will reduce the refundable advance and recognize a contribution.

For any business entity that received a PPP loan, you will have the same options as not-for-profit entities plus a couple more. Without overcomplicating this, business entities that consider PPP money to be a loan will apply FASB ASC 470. If it’s not a loan than a business entity will apply guidance from one of three options:

  • FASB ASC 958 is meant for not-for-profit entities; however, business entities can apply this guidance by analogy. Ultimately applying this guidance would put any forgiven amount above the line as a contribution.
  • IAS 20 can also be applied by analogy. Similar to FASB ASC 958, this option would result in a liability being initially recorded; however, any forgiveness of the PPP loan would either be shown as “other income” or a reduction to the expenses relating to this grant (e.g. payroll expense).
  • FASB ASC 450 covers gain contingency recognition. Similar to the other options noted above, a liability would be recorded. However, the AICPA did not specify where on the income statement it would be recognized other than to say “the earnings impact would be recognized” essentially upon forgiveness.

Some of you may think this is unnecessarily complicated. While we don’t disagree, we will offer the following illustration of what we just covered in the hopes that it simplifies your options:

There you have it – several options from the AICPA on how to record your PPP loan. If you have any questions on this or other aspects of the Paycheck Protection Program, please do not hesitate to contact us at covid19@macpas.com and let us know how we can help.

** Here is the link to the AICPA’s Questions and Answers: https://www.aicpa.org/content/dam/aicpa/interestareas/frc/downloadabledocuments/tqa-sections/tqa-section-3200-18.pdf. Please note, their answers are not sources of established authoritative principles.

 


This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although McKonly & Asbury has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.