Best Practices for Tracking PPP Expenses

Businesses that have successfully applied for a Paycheck Protection Program (PPP) loan and received approval from their lender are now wondering what comes next. Loan recipients will need to switch focus from maximizing their PPP loan amount to maximizing PPP loan forgiveness.

In seeking PPP loan forgiveness, businesses must meet compliance measures to avoid penalties for misrepresentation and false certifications under the Small Business Act. As loan proceeds must be used within eight weeks of receiving the loan, businesses must implement good practices and procedures now to streamline their process for PPP loan forgiveness.

We’ve compiled a list of best practices and guidance for keeping in line with PPP provisions and loan forgiveness.

1) Deposit received funds into a separate checking account dedicated to the PPP loan proceeds.

  • This will aid in tracking the funds used for the specified purposes.
  • If a copy of the bank activity is requested, you now have a separate account versus having to share all operating bank activity.
  • We understand some banks are not allowing a separate account to be setup

2) Track expenses in your general ledger. 

  • When funds are received you will have an increase in cash account (debit), the offsetting credit should be to a short term liability account.
  • As Paycheck Protection funds are used, create journal entries based on supporting documents (payroll journals, rent payment, interest payments, utility payments) and debit the short-term liability account. The credit can go to a miscellaneous income account or a contra account to your expenses or directly against the expenses.

3) Maintain a “journal” of the effects COVID-19 has had on your business. 

  • Loan certification required an assertion that COVID-19 impacted the business.
  • The diary/journal could be electronic or written.
  • The entries could be weekly or as needed.
  • This log can provide information and specific examples of how your business was affected from employees to customers, vendors and more!

4) Maintain adequate records for support of payroll costs. 

  • Prepare the data for submission related to each payroll including:
    • Wages and other compensation
    • Health Care Costs using a reasonable allocation method
    • Retirement Plan Employer Contributions
  • Ensure you are not “double-dipping” which would sacrifice loan forgiveness opportunities.
    • If paying employees under the Families First Coronavirus Response Act for Emergency Sick Pay or Emergency FMLA, maintain adequate records as these amounts will be adjustments to your Payroll Costs.
    • You cannot participate in these CARES Act benefits: Employee Retention Credit or Delay of Employer Tax Payments.
  • Keep a separate file with invoices paid for the following:
    • Rent
    • Utilities
    • Mortgage Interest

Regularly check in with your lender to confirm the type and form of the loan forgiveness application and any additional guidance on what will be required for documentation. Continue to monitor the SBA’s website for updates on loan forgiveness and interim rules on how it will be calculated.

If you have questions on the CARES Act or PPP, reach out to a KerberRose Trusted Advisor to stay up-to-date on the latest guidance.

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