How To Account For Your PPP Loan

Finance personnel in a warehouse discussing how to account for their PPP loan

As a recipient of a Paycheck Protection Program (PPP) loan, you may have questions about how to account for the loan proceeds. Some think of the loan as a debt, others say it could be considered a government grant. The AICPA recently released guidance to address this question. It ruled that business entities and nonprofits may account for a PPP loan as a financial liability.

This means you should:

  1. Record the cash inflow from the PPP loan as a financial liability and accrue interest at the note’s stated rate. For PPP loans, the interest rate is 1%.
  2. Continue to record the loan proceeds as a liability until your loan is forgiven (completely or partially), and you’re legally released from the loan, or you pay off the loan.
  3. Reduce the liability by the forgiven amount. Record a gain on extinguishment once the loan is forgiven (completely or partially), and you receive legal release.

If you expect to receive loan forgiveness and consider your PPP loan a government grant, you may choose to follow other accounting standards: accounting for contributions by not-for-profit organizations, gain contingency recognition, or IAS 20.


Accounting for contributions by not-for-profit organizations

Under this accounting model, any conditional contributions aren’t recognized as income until conditions are met or waived. Therefore, you would record your PPP loan proceeds as a liability until the forgiveness criteria are met.

Not-for-profit entities are required to follow this standard if they choose not to follow the financial liability rules listed above. For-profit entities may also use this standard.


Gain contingency recognition

According to this standard, the earnings impact of a gain contingency is recognized when all contingencies related to the assistance are met, and the gain is realized. Record your PPP loan proceeds as a liability until you meet all contingencies related to the forgiveness criteria and grant proceeds are realizable.


IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance

If your business is a nongovernmental for-profit entity, you can follow the rules of IAS 20 to account for a PPP loan rather than following financial liability standards. Under IAS 20, you record loan proceeds as a deferred income liability. And, you don’t recognize government assistance until there’s reasonable assurance that conditions attached to the assistance will be met and assistance will be received.

Once there’s reasonable assurance that you’ll meet the conditions, the earnings impact is recorded in the same periods in which you recognize the grant expenses.


What are the PPP loan forgiveness requirements?

As a reminder, your loan is eligible for forgiveness if you meet the following requirements:

  • Spend funds on eligible expenses during the covered period
  • Use at least 60% of the loan funds on payroll costs
    • If you don’t meet this threshold, your loan is eligible for partial forgiveness.
  • Apply for forgiveness within 10 months of the last day of the covered period
  • Certify that your loan request was made in good faith


Regardless of how you choose to account for your PPP loan, you should project your loan forgiveness amounts before recording any loan proceeds as income. We’ve developed tools to help you project your forgiveness amount. Contact us if you’d like to use them.


Want to learn more about how to account for your PPP loan? Let’s talk!