Accounting Recommendations For PPP & EIDL Loans - Small Business Outsourced CFO

Everyone is talking about getting cash, but just as important is getting the loan FORGIVEN.

Phase 1 - Calculate & Apply:

  • Guide you in gathering all of the required documents you need to apply for an SBA loan.
  • Calculate the amount that you will be eligible to borrow under the 7(a) PPP forgivable loan program by analyzing qualified included and excluded expenditures.
  • Assist you in connecting with your SBA lender.
  • Consult on comparing loan options

Phase 2 - Loan Forgiveness:

  • Analyze & optimize eligibility for loan forgiveness for expenditures during the 8 week period beginning on the date of the origination of the loan
  • Consult on reduction on the number of employee headcount & reduction of greater than 25% in wage rules
  • Calculate how much of the borrowed funds will be forgiven at the end of the 8-week period.

Accounting Recommendations For PPP & EIDL Loans

During these unprecedented times, we understand that time is of the essence and business owners all over the United States are in desperate need of guidance on the PPP - Paycheck Protection Program and EIDL- Economic Injury Disaster Loans. The CARES-Act is designed to provide financial relief for small businesses, but there are specific regulations that you need to follow to be able to maximize the benefits of this aid. Like most federal financial legislation it is filled with complexities that make it challenging for the average business owner to decipher.

As a small business ourselves we are able to truly connect with the concerns that are keeping business owners up at night. So our team of small business accountants is closely monitoring and analyzing this legislation to provide business owners with the financial guidance they need.

So let’s dive in.

1) Banking and bookkeeping:

  • For ease of accounting, an option for entrepreneurs may be to open a separate checking account at the bank of issuance and pay for all of the qualified expenditures out of that account.

  • This may be especially important if entrepreneurs have applied for both the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL), as they cannot be used for the same purpose.

2) Spending the loan proceeds:

  • Remember to only pay for the qualified expenses with these funds in order to maximize the forgivable portion of the loan. A few of these expenses are:

    • W-2 Payroll costs including tipped employees

    • Interest on mortgage obligations of the business

    • Business Rent on leasing agreements

    • Business Utilities (electricity, gas, water, transportation, telephone, or internet)

3) Forgiveness period:

  • The eight-week forgiveness period begins on the date the lender makes the first disbursement of the PPP loan to the borrower (i.e. the Origination date)
  • We recommend to generate a calendar reminder for 8 weeks after you have received the funds so that the forgiveness period isn't forgotten. We'd recommend this calendar reminder/invite is shared with your accountant, as your accountant will help you put together the paperwork for the forgiveness calculation for your bank and the SBA.

4) Proposed accounting journal entries:

Receipt of PPP loan proceeds:

  • Debit Cash

    • Credit S-T Liability - PPP loans

Receipt of EIDL loan proceeds:

  • Debit Cash

    • Credit Other Income - EIDL Grant

Expenditures of loan proceeds

  • Debit Payroll Expense

    • Credit Cash

  • Debit Rent

    • Credit Cash

  • Debit Utilities

    • Credit Cash

    Forgiveness of the loan:

    • Debit S-T Liability - PPP Loans

      • Credit Equity

    Paying off loans:

    • Debit S-T Liability - PPP Loans

    • Debit Interest Expense

      • Credit Cash

    We have the resources to quickly respond to your needs. Contact us today at 404.955.7338 our team is here for you.


    This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.