Please note: This blog is current to the date of its publication, Thursday, July 16. For additional updates or assistance navigating these uncertain times, please contact us or visit our SST COVID-19 resource page.
Many nonprofit organizations and for-profit small businesses would not have survived the COVID-19 pandemic and subsequent economic downturn without assistance from the Paycheck Protection Program (PPP). Now, these entities are tasked with using the Generally Accepted Accounting Principles (GAAP) to determine the correct approach for recording the funds they received, as well as potential future forgiveness, for financial reporting purposes.
Many of SST’s nonprofit clients have been seeking additional guidance on the reporting process, so we’ve outlined some of our top recommendations below.
If the organization determines that it will not meet the criteria for loan forgiveness, the funds should still be recorded as a loan. In addition, the organization should calculate and record accrued interest on the loan based on the interest rate of 1%.
If the organization believes it will qualify for loan forgiveness, it should record the PPP funds as a conditional contribution. Conditional contributions should be initially recorded as deferred revenue (liability account) in the financial statements. When the conditions related to the funds are met, the loan would be forgiven and the funds recorded as a contribution.
Small businesses and nonprofit organizations must maintain detailed records to document compliance with the terms of the PPP. Expenses should be recorded as normal, however, the organization may set up a separate class or other type of identifying account code to easily track expenses to meet the forgiveness requirements.
If your organization has a fiscal year end date of June 30, the year end financial statements may include a deferred revenue liability. Any amounts forgiven before the audited financial statements are issued would be disclosed in a subsequent events note.
Finally, it’s important that organizations keep the following in mind:
- The forgiveness period has been extended to 24 weeks
- The payroll expenditure requirement is 60%
- The SBA resumed accepting applications on July 6, 2020, and the new deadline to apply for a loan under the program is Aug. 8, 2020
Thanks to SST Senior Audit Manager Bridget Losa for providing the content for the post. Click here to learn more about Bridget.