In response to the government loans for COVID-19 KWRI recommends the following accounting guidance to book and track the PPP and Disaster Relief Loans.
Step 1: Record the loan when cash is received
Debit: Cash Account (User Defined 1-090X)
Credit: ST Liability (Used Defined 2-40XX)
Market Centers may opt to create a separate bank account however this is not required. We also do not recommend co-mingling the Disaster Loans and the PPP loan. The PPP loan should be recorded separately and applied towards qualified expenses.
Step 2: Pay expenses
Debit: Applicable above-the-line expense (PPP qualified expenses ie rent, payroll etc. as stated in your loan agreement)
Credit: Cash account chosen in Step 1
If expenses were pre-booked, Debit the corresponding liability and Credit cash.
Step 3: Reconcile bank accounts weekly
At no time should the loan be reduced through income or equity. The balance should remain the same until such time the loan is forgiven by the government or you start to pay back the loan as stated in the terms of the agreement. More guidance to follow.