How to Record PPP Loan Forgiveness in QuickBooks Desktop & Online?

Many unpredictable events have occurred in the last few years and negatively affected the financial situations of several small companies. To protect them, the government introduced the Paycheck Protection program. It was intended to support small enterprises with funds to enable them to cover their payrolls for about eight weeks. Through this article, we have explained how to record PPP loan forgiveness in QuickBooks.

What Is PPP Loan Forgiveness?

PPP loan forgiveness is the process by which a borrower can be relieved of the commitment to repay all or part of the principal and interest on a Paycheck Protection Program (PPP) loan.

It is one of the most important components of the PPP program, entitling businesses to obtain a financial bailout during crises. In return, borrowers should follow set rules, such as the number of employees and their wages during the period of coverage, to qualify for loan forgiveness.

Documents required in the loan forgiveness process include proof of the proper use of funds, such as payroll, lease agreements, and utility bills. Satisfying these conditions is crucial for companies that want to obtain full or partial loan cancellation of PPP.

Why Is It Important to Record PPP Loan Forgiveness in QuickBooks?

The process of recording  PPP loan forgiveness in QuickBooks is significant for reporting and accounting since appropriate records affect the business’s financial statements and are in compliance with the established guidelines.

This documentation not only assists with financial disclosure but is also useful for complying with the set rules and regulations. The ability to accurately record PPP loan forgiveness in QuickBooks enables businesses to show the relevant authorities that they followed the policy, and the General ledger reflects the true financial status of the company.

It also helps businesses monitor the use of the forgiven funds, and the report presented can show the proper trail, which is important for record keeping.

How to Record PPP Loan Forgiveness in QuickBooks Desktop?

How to record PPP loan forgiveness in QuickBooks Desktop, create a new bank account for PPP funds in the Chart of Accounts. Set up a loan account as a long-term liability, deposit the loan proceeds, and record the amount received.

Follow the steps below:

Step 1: Navigate to the Chart of Accounts

First, go to the Accountant menu, and then select the Chart of Accounts.

Step 2: Select the New Option

Now, click on the Account drop-down menu, then choose New option.

Step 3: Enter the Details

Select the Bank radio button and click on the Continue button. Then, enter a name for the account, such as PPP Loan Funds.

Step 4: Save the Changes

Click on the Sub-account and select the bank account from the drop-down menu. Then, click on the Save and Close option.

Once done, make a new loan account in the Chart of Accounts.

Follow the mentioned steps below:

Step 1: Navigate to the New Option

First, from the Chart of Accounts option, select the Account option from the drop-down menu.

Step 2: Select the Long Term Liability

Now, choose Other Account Types, then tap on the Long Term Liability option. Then click on Continue.

Step 3: Enter the Details

Enter a name for the account and click on the Save and Close option.

Now, record the loan proceeds received:

Step 1: Navigate to Make Deposits

First, go to the Banking menu, then choose the Make Deposits option.

Step 2: Change the Deposit To Account

Now, change the Deposit account to the new bank sub-account. Then, in the From Account menu, select the loan account that has been created.

Step 3: Enter the Details

After this, enter the amount which is received in the Amount column. Then, click the Save and Close option.

How to Record PPP Loan Forgiveness in QuickBooks Online?

To get off the PPP loan or record the forgiveness, you’re required to create a journal entry. We suggest you reach out to your accountant to make a decision on which accounts to use.

Follow the steps mentioned below to create a journal entry:

Step 1: Navigate to Journal Entry

First, click on the +New, then select the Journal entry.

Step 2: Choose an Account

Now, from the next line, choose an Account from the Account menu. Then, on the next line, choose the other account you’re shifting money to or from.

Step 3: Enter the Details

Ensure your debit and credit amounts are in balance. Then, enter the information in the memo field so you’ll have an idea about why you’ve made the journal entry. Select the Save and New or Save and Close button.

How to Record Forgiven Employee Loans in QuickBooks?

To record forgiven employee loans in QuickBooks, go to Settings > Chart of Accounts, create a new account as “Other Current Assets,” choose “Loans to Others,” and name it accordingly.

Follow the steps mentioned below to record forgiver employee loan in QuickBooks:

Step 1: Navigate to the Chart of Accounts

First, clock on Settings, then select the Chart of Accounts option.

Step 2: Choose the Account Type

Now, click on the New option from the left side of the menu. Then, choose the account type ( you have the option to select them as other current assets).

Step 3: Enter the Details

Select Loans to others in the specific Details type drop-down menu. Then, provide a name like a Customer Loan.

You’re required to record the PPP loan forgiveness properly in QuickBooks because this allows businesses to show compliance with government guidelines and ensures that their financial statements demonstrate their real financial position.

Bottom Line!

PPP loan forgiveness is a crucial aspect of small businesses which means that the loan recipient (the small business owner) is no longer required to repay some or all the loan principal and interest. The loan forgiveness is based on the business owner using the funds for eligible expenses, primarily to maintain payroll. It ensures that the forgiven loan amount reduces your liability accounts and the forgiven amount is reflected in your income.

You’re required to record the PPP loan forgiveness properly in QuickBooks because this allows businesses to show compliance with government guidelines and ensures that their financial statements demonstrate their real financial position.

FAQs

What is a PPP Loan?

The Paycheck Protection Program (PPP) loan is a government-provided loan designed to provide a direct incentive for small business owners to keep their workers on payroll during challenging economic times. The PPP loan may be fully forgiven if all employees are marked on the payroll for a specified duration.

Does QuickBooks have a PPP Loan Forgiveness Report?

Yes, QuickBooks does provide a PPP loan forgiveness report to its users. Before submitting your report, make sure you have entered all the necessary details and data to avoid other errors and omissions.        

How Do I Submit PPP Forgiveness to QuickBooks?

For submitting PPP Forgiveness, you need to visit the PPP Centers’ portal then click on Live Chat, or you can directly connect with their team using the Intuit link to PPP support chat. Also, users can visit QuickBooks’s PPP loan forgiveness website and get their queries resolved.

Can I Deduct Expenses Paid with My PPP Loan?

Yes, expenses paid with a PPP forgiveness loan are deductible. Business expenses paid with emergency (EIDL) Economic Injury Disaster Loan grants, Business expenditures paid with previously forgiven PPP loans and targeted EIDL advances are deductible. The PPP is now a genuine lifeline for struggling small businesses during the epidemic.

Should PPP Loan Forgiveness Be Recorded as Taxable Income?

According to IRS guidance and the CARES Act, PPP loan forgiveness is not considered taxable income at the federal level. However, state treatment may vary. It’s always a good idea to consult with a tax advisor before recording PPP Loan Forgiveness in QuickBooks.

What Type of Account is PPP Loan Forgiveness?

PPP Loan Forgiveness proceeds should be recorded as Income from continuing operations, as a separate line item.

How Do I Set Up a New Income Account For PPP Loan Forgiveness in QuickBooks?

To set up a new income account for PPP Loan Forgiveness, do the following:

1. Go to the Chart of Accounts then select Account and click New.
2. Choose Other Account Types and Other Income.
3. Press Continue.
4. Type a name for the account, like “PPP Loan Forgiveness.”
5. Hit the Save and Close tabs.

Disclaimer: The information outlined above for “How to Record PPP Loan Forgiveness in QuickBooks Desktop & Online?” is applicable to all supported versions, including QuickBooks Desktop Pro, Premier, Accountant, and Enterprise. It is designed to work with operating systems such as Windows 7, 10, and 11, as well as macOS.