In the immediate aftermath of the economic shutdown, small businesses across America struggled to make ends meet and were most concerned about liquidity and the survival of their business. Now that the initial shock has passed and the economy is beginning the process of reopening, many are asking questions regarding how loans under the Paycheck Protection Program (PPP) should be accounted for.
The AICPA, in consultation with the SEC and FASB, has issued guidance on accounting for PPP loans by adding Question .18 to Technical Q&A Section 3200, Long-Term Debt (TQA). There are four models that may be appropriate when accounting for PPP loans. These four models differ in their treatment of the proceeds when initially received as well as the timing of when the liability is derecognized, and income is recognized. Management will need to consider their eligibility for forgiveness, their ability to meet the forgiveness conditions, as well as whether they intend to seek forgiveness of PPP loans when determining which model is preferable.
While business entities have four available models when accounting for PPP loans, non-profit entities receiving PPP loans are limited to the debt model (ASC 470) and the conditional contribution model (ASC 958-605).
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