Track Your Paycheck Protection Loan And Covered Expenses In Your Accounting

Over the past two weeks, 1.6 million businesses, nonprofits, and churches have applied for the Paycheck Protection Program. If this is your organization, it is important to ensure you track expenses correctly so you can apply for loan forgiveness. Here are a few things to keep in mind when you are tracking the loan in any bookkeeping system:

Timeframe For Expenses

To be eligible for forgiveness, the funds from the Paycheck Protection Program need to be spent during the Covered Period, which is the 8-week period following loan disbursement. It is important to remember that the Covered Period is 8 weeks, not 2 months. If you have payroll on a monthly or semi-monthly basis, you may need to pay your last payroll early to get it in the 8-week Covered Period.

Payroll vs. Other Costs

At least 75% of the loan needs to be spent on Payroll Costs. This is a specifically-defined term that includes:

• Salary, wage, commission, or similar compensation
• Payment of cash tip or equivalent
• Payment for vacation, parental, family, medical, or sick leave 
• Allowance for dismissal or separation
• Payment required for the provisions of group health care benefits, including insurance premiums
• Payment of any retirement benefit 
• Payment of state or local tax assessed on the compensation of the employee 

Other covered expenses include mortgage interest payments, covered rent payments, and utilities, but these cannot exceed more than 25% of the forgiven amount.

Accounting Entries To Track Your Loan And Expenses

There are a variety of ways you can account for the Paycheck Protection loan and covered expenses, and every organization is a little different. If you are using Aplos to manage your bookkeeping, you have two options for how you can account for the loan and track your expenses for easy reporting: funds or tags. The best option will depend on how you are currently using Aplos. We recommend working with an accountant to review your structure and expenses to advise you on the best solution for your organization. 

That being said, we will walk you through the general idea of using either tags or funds in Aplos to track the Paycheck Protection Program loan in your accounting. The simplest way will likely be to use tags to easily break out your expenses by Payroll Costs and Other Covered Costs. If you use Gusto for your payroll, and have already mapped your payroll expenses to specific tags, it will likely be easier to track your loan as its own fund. Next, let’s walk through both options to see how to do the accounting entries.

Option 1: Track Your Paycheck Protection Loan Using Tags

Step 1: Create a liability account for the loan in the chart of accounts.

We recommend setting up a specific liability account to track this loan, such as “PPP Loan.”

Step 2: Create tags and sub tags.

Create a tag for PPP Loan Expenses with a sub tag for Payroll Costs and Other Covered Costs.

Go to Tags in Aplos.

Step 3: Post an accounting entry when the loan is funded.

When receiving the loan, you post a deposit into the register of the bank account where the loan amount came in, using the newly created “PPP Loan” liability account. 

As another option, you could post this as a journal entry.

Step 4: Assign covered expenses to the tag.

As you enter your covered payroll, rent, utilities, or interest expenses, include the PPP Loan Expenses Tag to note if this was a Payroll Cost or Other Covered Cost.

Remember to keep your supporting documentation for all expenses (invoices, payroll journals, etc.).

When tagging your payroll expenses, certain costs are specifically excluded. (See Page 10, Section G for excluded payroll expenses in the SBA Guidance). If these are broken out on separate lines of your register transaction or journal entry, don’t tag these items for the PPP Payroll Expense. You can either exclude these expense accounts in your reporting, or you can post a correction journal entry that is the value of the excluded items so they are not applied to the tag. Here is a sample of what that may look like:

Step 5: Review your financial reports.

Filter your report by tag, and set the date range for the 8 weeks since the date your loan was funded to see the amount left in the loan, and how much has been spent on payroll and other expenses. 

• Tag Based Income Statement: Show the tags as columns to see the breakout of expenses by account.
• Tag Transaction List: See the list of individual items.

Step 6: Note loan forgiveness.

You may need to create a new income account, such as “Grant Income,” if you don’t have an existing income account that would be appropriate to account for the loan forgiveness. If you qualify for forgiveness of the loan, the journal entry would be as follows:

Option 2: Track Your Paycheck Protection Loan As A Fund

Step 1: Create a liability account and fund for the loan in your chart of accounts.

We recommend setting up a specific liability account to track this loan, such as “PPP Loan.”

You will also need a new fund, such as “PPP Loan Fund.”

Go to the Chart of Accounts in Aplos.

Step 2: Post an accounting entry when the loan is funded. 

When receiving the loan, you post a deposit into the register of the bank account where the loan amount came in, using the newly created “PPP Loan” liability account. As another option, you could post this as a journal entry.

Account Register Option

Journal Entry Option

Step 3: Assign covered expenses to the fund.

As you enter your covered payroll, rent, utilities, or interest expenses, assign them to the PPP Loan Fund instead of your general fund. Remember to keep your supporting documentation for all expenses (invoices, payroll journals, etc.).

When tagging your payroll expenses, certain costs are specifically excluded. (See Page 10, Section G for excluded payroll expenses in the SBA Guidance.) You can either exclude these expense accounts in your reporting, or you can post a correction journal entry that is the value of the excluded items so they are moved to a different fund.

Step 4: Review your financial reports.

Filter your report by fund, and set the date range for the 8 weeks since the date your loan was funded to see the amount left in the loan, and how much has been spent on payroll and other expenses. 

• Income Statement by Fund: See the breakout of expenses by account.
• Transaction List: Filter by fund to see the list of individual items.

Step 5: Note loan forgiveness.

You may need to create a new income account, such as “Grant Income,” if you don’t have an existing income account that would be appropriate to account for the loan forgiveness. If you qualify for forgiveness of the loan, the journal entry would be as follows: