EIDL Loan Bookkeeping and Banking Guidelines

EIDL Loan Bookkeeping, Banking and Spending Guidelines

During these unprecedented times, 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). It’s important to be informed about EIDL loan bookkeeping and banking guidelines. 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. Our team of small business accountants is closely monitoring and analyzing this legislation to provide business owners with the financial guidance they need. Bookmark our PPP Loan Updates page for the latest news. So let’s dive in.

1) EIDL Loan Bookkeeping

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

2) EIDL and PPP Loan Banking

  • 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.
  • EIDL loan bookkeeping is especially important if entrepreneurs have applied for both the  PPP and the EIDL, as they cannot be used for the same purpose.

3) 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)

4) 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 outsourced accountant, as your accountant will help you with the EIDL loan bookkeeping for the forgiveness calculation for your bank and the SBA.

A CPA can Help You with EIDL Loan Bookkeeping and More

Our CPAs can:

  • 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 loan program by analyzing qualified included and excluded expenditures.
  • Assist you in connecting with your SBA lender.
  • Consult on comparing loan options.
  • 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.
  • Help you with EIDL loan bookkeeping and tax filing.

Speak With A CPA Today!

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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.

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