Lots of Buzz about the PPP Loan funds. Here are some things we’ve seen so get with your CPA and ask questions.
CFMA – the Construction
Financial Managers Association – confirms that the PPP Funds are a loan and
should be treated as such.
These should be booked on the balance sheet as a liability (a loan).
They even say you should accrue interest at the government-specific rate.
Even if you think some or all of the funds will be forgiven, until they are legally released, or the loan is repaid, it should be reflected as a loan on your books.
Disclaimer: We are sharing our findings with you. Our goal is to
keep you informed and help you bring good questions to your tax professional.
Since all of this is new to everyone, and there are regular changes coming from
the government, we encourage you to research all information you find, and all
answers you receive, weighing them carefully before making a decision.
Recently a CPA asked for
an entry to book the portion of the PPP funds as Other Income. Based on
everything known at this time, the amount he asked to have booked should meet
the forgiveness guidelines. His reasoning was that the expenses under the PPP
Funds will not be deductible, although he says he thinks this will change. This
seems risky to us:
It’s unclear how
the ‘forgiven’ funds will be presented on the financials and we haven’t seen a
final word yet.
There are tax
implications if forgiven funds are booked as Other Income.
suggested treating the forgiven funds as a Gain/Loss entry. Again, there are tax
implications if this is the case.
forgiven funds will be posted to the Owners Equity Section of the balance
sheet. This leads to a question on how this would play out on a tax return, at
expenses to perform the job-specific work are absolutely part of getting the
work done, without which, there would be no Income, nothing to bill. So we do
not think any entries should be made to reduce payroll expenses. The work
performed results in the end product which is billed, so the billing and
expenses should remain as-is.
One final thought that you can bring to your tax professional:
If you are asked
to reduce expenses, do NOT reduce job-specific expenses. This will create havoc
with your Gross Profit info, Cost to Complete reporting, and Over/Under WIP
If you have to
make an entry to reduce expenses, which we are NOT recommending, use a contra
account rather than posting against any specific job. This will isolate the
dollar amount and keep your job-related numbers intact.