How to Record PPP Loan Forgiveness on Financial Statements. This guide provides information on how to properly record PPP loan forgiveness on your financial statements.
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Overview of PPP Loan Forgiveness
The PPP loan forgiveness process can be confusing and complicated. You may be wondering how to record PPP loan forgiveness on financial statements. In this article, we will give you an overview of the PPP loan forgiveness process and how to record it on your financial statements.
What is PPP Loan Forgiveness?
The Paycheck Protection Program (“PPP”) is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.
The Pocahontas Press Pvt. Ltd. will be forgiven in an amount equal to the sum of payments the borrower has made for payroll costs, interest on mortgage obligations, rent, and utilities incurred during the 8-week period beginning on the date of the loan origination. The maximum amount of loan forgiveness is capped at the original loan amount plus any accrued interest.
To receive forgiveness, borrowers must apply through their lender no later than 10 months after the end of their covered period. Borrowers must also submit documentation verifying eligible payroll and non-payroll expenses.
How to Apply for PPP Loan Forgiveness
TheapplicationforPPPloanforgivenesscanbe madeelectronically throughthe SBA’s Forgiveness Platform. This is the form that must be completed by the borrower and submitted to their lender.
The forgiveness process is as follows:
The borrower completes and submits the Loan Forgiveness Application to their lender (with supporting documentation)
The lender has 90 days to review and approve the application
If approved, the SBA has 180 days to issue a decision on loan forgiveness (or notify the lender of any deficiencies)
If approved, the loan is forgiven and the borrower does not have to make any future payments on the loan
Recording PPP Loan Forgiveness on Financial Statements
The Paycheck Protection Program created by the CARES Act allows small businesses to apply for loans that will be forgiven if used for certain expenses. If you have received forgiveness for your PPP loan, you may be wondering how to record it on your financial statements. Here is a brief overview of how to do so.
Forgiveness of the Principal Amount
The principal amount of the loan that is forgiven by the SBA will be reported as Other Income on the Company’s income statement. Other Income is an accounting category that is used to report non-operating income and expense items. The principal amount forgiven will not have any tax implications.
Company A received a PPP loan in the amount of $1,000,000. The loan carried a 1% interest rate and was scheduled to be repaid over a two-year period. The entire principal amount of the loan was forgiven by the SBA.
On Company A’s income statement, the $1,000,000 forgiveness would be reported as Other Income.
Forgiveness of the Interest Amount
The interest forgiveness period covers the first 10 months after the end of the covered period. You will need to make monthly payments on the loan during this time. If you don’t pay the full amount of interest that is due, the remaining balance will be added to the principal balance of the loan and you will be required to pay it over the life of the loan.
To record interest forgiveness on your financial statements, you will need to make two entries. The first entry will be to record the forgiveness of the interest amount and the second entry will be to record a loan modification.
To record the forgiveness of the interest amount, you will need to debit “Interest Expense” and credit “PPP Loan Forgiveness.” The amount that you debit or credit will be equal to the total amount of interest that is being forgiven.
To record a loan modification, you will need to debit “Loan Modification Expense” and credit “PPP Loan.” The amount that you debit or credit will be equal to the total amount of interest that is being forgiven.
Forgiveness of any Additional Fees
The SBA has clarified that forgiveness of any additional fees charged by the lender over and above the interest rate on the PPP loan is not included in the forgiveness calculation. These fees may include, for example, origination fees, prepayment penalties, guarantee fees, or other fees charged by the lender.
To conclude, you will need to record the forgiven PPP loan on your financial statements. You should include the forgiven amount as income in your Profit and Loss statement and list the forgiven loan as a long-term liability on your balance sheet. Be sure to consult with your accountant or financial advisor to ensure that you are properly recording the forgiveness of your PPP loan.