Accounting for Paycheck Protection Program loans

In response to the COVID-19 pandemic in 2020, the Coronavirus Aid, Relief, and Economic Security Act (also known as the CARES Act) established a Paycheck Protection Program (PPP) to provide small business and nonprofit organization loans. The loans were forgivable if the entity spent the funds on payroll, mortgage interest, rent and utilities in a specified period after receiving the loan, with at minimum percentage of the funds spent specifically on payroll.

The American American Institute of CPAs (AICPA) issued Technical Question and Answer (TQA) 3200.18 in June 2020 to address how nongovernmental entities, including nonprofit and business entities, can account for forgivable loans received under the PPP.

Loans accounted for as debt

If an organization has no plan to request forgiveness of the PPP loan, or if the borrower cannot support that it will probably meet both eligibility and forgiveness criteria, the funds received should be accounted for as debt under FASB ASC 470, Debt. Under FASB ASC 470, when the proceeds are received, the loan amount is recorded as a liability and interest is recorded at 1% over the loan term using the interest method.

The loan proceeds remain recorded as a liability, based on guidance in FASB ASC 405-20, until either the loan is forgiven and the debtor has been legally released (in whole or in part), or the loan is paid off. If forgiven and released, the liability is reduced and a gain on extinguishment is recorded based on FASB ASC 450-30 for gain contingencies for the amount of debt forgiven, including accrued and unpaid interest and any unamortized deferred financing costs on the forgiven portion.

Loans accounted for as conditional contributions

If a nonprofit organization plans to pursue forgiveness and it is probable it meets the PPP eligibility and loan forgiveness criteria, it may account for the PPP loan as a government grant/conditional contribution under FASB ASC 958-605, Not-for-Profit Entities—Revenue Recognition. The loan is recorded when the cash is received as a refundable advance that would be reduced, with the conditional contribution recognized as income, once the conditions for loan forgiveness have been substantially met or explicitly waived. These conditions include incurring qualifying expenditures and maintaining the required employee and salary levels under the program.


Under either of these two accounting approaches, borrowers should disclose in the notes to the financial statements their accounting policy for the PPP loan and how it is presented in the financial statements, including any forgiveness in the period, along with meeting other disclosure requirements of FASB ASC 470 or FASB ASC 958-605, as applicable.

PPC’s Guide to Preparing Nonprofit Financial Statements

PPC’s Guide to Preparing Nonprofit Financial Statements includes detailed discussions on how to account for PPP loans and illustrative financial statement disclosures. Ensure your nonprofit financial statements are prepared correctly with Thomson Reuters tools such as PPC’s Guide to Preparing Nonprofit Financial Statements.

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