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.