How Can Borrowers Account for PPP Loans? by Whitney Schiffer, CPA

Posted on January 21, 2021 by Whitney Schiffer

As businesses and nonprofits close their books for 2020, those that received SBA-backed Paycheck Protection Program (PPP) loans must now consider how they will account for those funds on their end-of-year financial statements.

Absent specific reporting requirements from the SBA or the IRS, borrowers can instead rely on technical guidance issued by organizations that include the American Institute of CPAs (AICPA), the Financial Accounting Standards Board (FASB), and the International Accounting Standards (IAS), which offer four options for recording both PPP loan proceeds and forgiven amounts. The selection that is right for you will depend on your unique circumstances and should only be selected after working with professional accountants to help you weigh the short- and long-terms risks of each one.

Treating a PPP Loan as Debt (FASB ASC 470)

Businesses may opt to treat PPP proceeds in the same way they treat any other loan, recording it as a financial liability until they either 1) receive loan forgiveness or 2) pay off the loan amount. At the point that a lender legally releases a borrower from the debt, the entity would reduce the financial liability by the amount forgiven and record a gain on extinguishment of the debt liability.

Treating a PPP Loan as a Grant (IAS 20)

Businesses that are reasonably sure they will comply with PPP regulations and receive loan forgiveness may treat borrowed amounts as forgiven government grants. This means they will record the cashflow from loan proceeds as a deferred income liability. Next, they will recognize those amounts as income over the period in which they use grant funds to pay covered expenses, including payroll costs, rent, mortgage interest and utilities.

Treating a PPP Loan as a Conditional Contribution (ASC 958-605)

Ideally suited for nonprofit entities, ASC 958-605 allows borrowers to treat loan proceeds as conditional contributions they record as refundable advances, or liabilities, until they “substantially meet” certain conditions, which may occur in multiple stages. During those points in time, entities may reduce the refundable advances and begin to recognize forgiveness income. It is important to note, however, that an organization cannot recognize income until it meets the PPP headcount and qualified expense requirements of loan forgiveness.

Treating a PPP Loan as a Gain Contingency (ASC 450-30)

Businesses employing this method of accounting must first record PPP loan proceeds as a liability until they meet the headcount and qualified expense requirements and receive loan forgiveness from their lenders. At that point, borrowers would recognize grant proceeds as income.

No matter which method of accounting PPP borrowers choose to us, they must always take special care to disclose the details of their loans and accounting policies in the footnotes of their financial statements.

About the Author: Whitney K. Schiffer, CPA, is a director of Audit and Attest Services with Berkowitz Pollack Brant Advisors + CPAs, where she works with hospitals, health care providers, HMOs, third-party administrators and real estate businesses. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at