There has been nothing easy about the PPP Loan, and how the SBA is handling the EIDL Grant continues in this same fashion. THIS IS SUPER IMPORTANT: If you received an EIDL Grant (if one day the SBA deposited into your bank account $2,000 to $10,000 and you got no other paperwork, that’s the EIDL Grant), your PPP forgiveness will be reduced by this amount. That means that your PPP Loan will have a balance due and interest will start accruing. You will still owe this to your lender.
Here is the step-by-step on how to handle the EIDL Grant. Let’s say that you received $120,000 PPP loan and $3,000 EIDL Grant
- Create a current liability account called “PPP Loan”. Use this account when you record the deposit of the funds.
- Create a current liability account called “EIDL Grant”. Use this account when you record the deposit of the funds.
- If you also received an EIDL Loan, create a long term liability account called “EIDL Loan” (more on this later). Use this account when you record the deposit of the funds.
- Create an account called “Grant Funds”. If you have a group of expenses called “Other Expenses” that are regular expenses, put it in that group. Otherwise, create an Other Income account for this.
- When you receive the notice that your PPP Loan is forgiven, record a journal entry DR PPP Loan/CR Grant Funds for $117,000. (Assume you received full forgiveness) This will leave $3,000 as a balance in the PPP Loan.
- Write a check to the bank that gave you the PPP Loan for $3,000, and use the PPP Loan account when you record this check. The PPP loan account is now zero.
- Record a journal entry DR EIDL Grant/CR Grant Funds for $3,000. The EIDL Grant account is now zero. And the Grant Funds account will show $120,000 ($117,000 from the PPP and $3,000 from the EIDL)
I recommend using the date 12/31/20 for the journal entries so that your Profit & Loss reports for the rest of the year are not goofy, but this is a minor detail. Your tax preparer will handle the grant funds when the tax return is completed. And of course, we are still waiting for rulings on exactly how the expenses related to the PPP program will be handled.
For my comments about the EIDL loan see this post.