As you might know, the Paycheck Protection Program (PPP) is an incentive provided by the Small Business Administration (SBA) for businesses affected by COVID-19 in the US. The PPP aims to provide funds for at least eight weeks in order to help businesses pay off all basic operating charges such as employee wages, rent, interest or other utilities and retain their workforce. Read more about the Paycheck Protection Program from our blog.
In case you have applied and qualified for this program, you will have to account for all the cash flowing in and out of your business. If you're using Zoho Books, the best way to manage it would be to record the fund received as a liability account, track transactions with reporting tags and generate reports. Here's a step by step account on how to do this:
1. Create a reporting tag
To start off, you will have to create a reporting tag with which you can associate all transactions concerning PPP. To create a new tag:
- Go to Settings > Reporting Tags and create a new tag.
- Enter a Name for the tag (say, PPP) and the Option Name (say, PPP Funds).
- Save and proceed.
2. Record the fund received
As the fund received from the government is a liability unless it's forgiven, you will have to record the amount deposited under a liability account. You can create a new liability account from Chart of Accounts to keep a track of the amount received or spent. Let's call it the Paycheck Protection Program Loan account.
Once that's done, you can record the fund received:
3. Manage operating expenses
Because it's necessary to submit detailed reports at the end of the eight weeks on what the fund was spent on, you will have to keep a track of all incurred expenses (particularly, if they are covered under the PPP). Remember, it is important to account for your expenses in order to qualify for forgiveness. To record them:
- Go to Purchases > Expenses and create a new expense.
- Enter the details of the expense and in the Paid Through account choose the bank account through which you received the fund.
- Associate the tag PPP Funds and Save.
To get an overview of all the funds spent on expenses, you can run the Account Transactions report that's filtered by the PPP Funds tag. Here's how:
- Go to Reports > Account Transactions report.
- Select Customize Report and click + Add Filter under Advanced Filters.
- Select Reporting Tags as the field, select a comparator and choose PPP Funds.
- Add another filter by clicking +Add More. Then, select Account as the field, select a comparator and choose your bank account.
- Click Run Report to view them.
Repayments and forgiveness
In case your business qualifies for forgiveness (completely or partially), you can transfer the fund amount from the Liability account to an Income account using a manual journal to reduce the liability.
If you have to repay the loan amount, the payments can be recorded as Expenses. Enter the details of the expense, choose the Expense Account as the liability account you created (Paycheck Protection Program Loan) and your Paid Through account will be your bank account.
Note: The Paycheck Protection Program is currently closed. However, the government is considering adding more funds to the program and might reopen the program if the bill is passed.
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