Accounting for PPP Loans

FASB ASC 958-605 Government Grant Model

With this approach, for-profit entities would analogize the accounting treatment with the NPO US GAAP guidance for contributions. Contributions, as defined, can include the cancellation of liabilities. This model is founded on the premise that the substance of the PPP funds is a government grant which is delivered in the form of a forgivable loan. The CPEA report arrives at the recommendation to recognize the PPP loan proceeds into income as eligible expenses are incurred – provided that an entity has high confidence that the PPP loan proceeds will be forgiven. An entity could follow this treatment for the PPP loan portion for which it has high confidence of forgiveness and follow the debt model outlined below for the remainder of the loan proceeds. The journal entries would be as follows:

Upon receipt of the loan proceeds:

Deferred PPP Grant (Liability Account) $XXX,XXX
To record the receipt of PPP Loan Proceeds  





Upon spending of loan proceeds for eligible costs

Deferred PPP Grant (Liability Account $XXX,XXX
PPP Grant Income (Other Income Account)  $XXX,XXX
To recognize PPP grant income.  







FASB ASC 470 Debt Model

The debt model follows traditional loan accounting. The PPP loan proceeds would be recorded as a liability – like any other bank debt – and interest would also be recorded. Once the entity is legally released as the primary obligor from the creditor, the liability would be derecognized and a gain on “PPP loan extinguishment” would be recorded. An entity could follow this treatment for PPP loans when there is more than a remote likelihood that the loan proceeds will not be forgiven. Here are some of the journal entries that would be recorded – those related to routine interest expense and debt service payments are omitted:

Upon receipt of the loan proceeds:

PPP Note Payable (Liability Account)    $XXX,XXX
To record the receipt of PPP Loan Proceeds  





Upon forgiveness of all or part of the loan:

PPP Note Payable (Liability Account)         $XXX,XXX
Gain on PPP Loan Extinguishment (Other Income Account)    $XXX,XXX
To recognize PPP loan principal forgiveness.  





It is highly recommended for you to review the applicable US GAAP provisions for these accounting models in more depth as not all nuances are covered in this high-level summary.

When US GAAP does not provide one exclusive accounting treatment for a transaction, as is the case here, the significant accounting policies footnote should describe the accounting policy that an organization applies.

This summary focuses on the accounting for PPP Loans under US GAAP. Further consideration needs to be given to the accounting for these loans when an entity uses a different basis of accounting. As an example, an entity that is reporting under the income tax basis (ITB) of accounting could not utilize the government grant accounting model noted above. As of the writing of this summary, the PPP loan would need to be presented as debt until legally forgiven. Currently, expenses paid for with loan proceeds are not tax deductible. For ITB financial statements, you would still include those non-deductible expenses.


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