Nonprofit Accounting Basics

Accounting for Paycheck Protection Program (PPP) Loan Forgiveness

Note: Articles published before January 1, 2017 may be out of date. We are in the process of updating this content.

Dec 18, 2020

In June 2020, the AICPA issued Technical Question and Answer (TQA) 3200.18Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program. This guidance has been published to address accounting matters specific to Paycheck Protection Program (PPP) loan forgiveness and provide alternative accounting methods.

The guidance provides two alternatives for nonprofit organizations that keep their accounts in accordance with GAAP.

1) Account for the PPP loan as a financial liability in accordance with FASB ASC Topic 470, Debt.

You may account for a PPP loan as a financial liability in accordance with FASB ASC Topic 470 regardless of whether you expect to repay the PPP loan or believe it represents a grant that is expected to be forgiven. You accrue interest in accordance with the interest method under FASB ASC 835-30, but you would not impute additional interest at a market rate. The liability remains until the loan is, in part or wholly, forgiven and you have been “legally released” or you pay off the loan to the creditor. You would reduce the liability by the amount forgiven and record a gain on extinguishment once the loan is, in part or wholly, forgiven and legal release is received.  

2) Account for the PPP loan as a conditional contribution in accordance with FASB ASC 958-605.

Under this model, the timing of recognition for a contribution received depends on whether the contribution is conditional or not. If conditional, the contribution is not recognized until the conditions are substantially met or explicitly waived.  Specifically, you would initially record the cash inflow from the PPP loan as a refundable advance. You would then reduce the refundable advance and recognize the contribution once the conditions of release have been substantially met or explicitly waived.

Avoid “double-dipping”

Nonprofits are not be allowed to use PPP funds for the same expenses that are being paid with other government funds. To avoid “double-dipping”, you should separately record expenses paid with PPP funds and those paid with other government money in the general ledger.

If your organization has received material PPP loans, you should adequately disclose your accounting policy for such loans and the related impact to the financial statements.