Class Tracking of the PPP Loan

Class Tracking

Summary: This is probably the best way to track PPP eligible expenses as it will provide you with a Profit & Loss Statement of PPP expenses. Combining Class Tracking with a new bank account, or new QB subaccount, offers an additional audit trail and makes preparing documentation for loan forgiveness easier.

If you are currently using Class Tracking in QB then you will not be able to use this method because each QB transaction only allows for 1 Class to be selected. However, if you have used Classes in the past but aren’t currently using them you can make the old Classes ”inactive” and set up a new PPP Class to be used for the duration of the loan. (Go to Lists at the top menu then Class List to manage classes).

Advantages of using this method – You will be able to run a Profit & Loss Statement by Class to track just PPP qualifying Expenses. It will also show you what percentage of those expenses are from payroll.

Disadvantage of using this method – the P&L Statement by Class won’t show you how much money is left from the PPP funds because it only tracks the expenses. Since the PPP Loan is set up as a Liability it will show up on the Balance Sheet and not on the Profit & Loss Statement. However, setting up a new subaccount register in QB (Method #2) or opening up a new bank account (Method #1) will allow you to easily see how much money you have left.

Cautionary Note: Payroll checks and direct deposit drafts from the bank account are net payroll checks (after payroll taxes and deductions) so coding just the net payments that come out of the bank account will not accurately reflect the allowable payroll expenses.

An example of the report that can be generated using Class Tracking is:

How to use the "Class Tracking" method:

Turn on the Class Tracking feature in QB
- Go to Edit on the top menu then Preferences. Select Accounting on the left side and then the Company Preferences tab in the center. (This may need to be done in Single User mode and logged in as Administrator).
- Select Use class tracking for transactions. The “Prompt to assign classes” is an option that will remind you to select a class before you save each transaction – you can choose not to turn it on, or to turn it on just for the duration of the PPP Loan. Click on OK.
- Go to Lists on the top menu bar and then Class List. At the bottom of this window select Class then New. Enter “PPP Loan” in the Class name and then OK.
- A “Class” field will now be available when writing checks, entering bills, credit card charges, deposits, etc.
Creating a new Long Term Liability account called “PPP Loan Payable”
- Go to Lists at the top menu then Chart of Accounts.
- Select Account in the bottom left corner then New.
- Select Other Account Types, Long Term Liability and then Continue.
- Name the account something like “PPP Loan Payable”. Do not enter an opening balance.

** It is recommended to set up the loan as a Liability until it is determined how much of the loan will be forgiven. If some or all of the loan is forgiven you can create an “Other Income” type account called “PPP Loan Forgiveness” and make a Journal Entry to Debit the “PPP Loan Payment” liability account and credit the “PPP Loan Forgiveness” other income account.

Record the Deposit of the PPP Loan funds received
- Go to Banking at the top menu and then Make Deposits
- Deposit To = the bank account the funds were deposited to (i.e. the “Checking” account, the newly created bank account or the newly created “Checking: PPP Loan subaccount”)
- Enter the date the funds were deposited
- Received from = the lender you received the funds from (set up a new vendor if needed)
- From Account = “PPP Loan Payable”. Enter memo and amount.
- Class = select “PPP Loan” as the class.
Recording PPP eligible expenses such as rent and utilities:
- When paying an expense from PPP funds you will select “PPP Loan” as the Class. This column is usually on the right side when entering checks, bills, deposits, etc.
- Note: When using the Check Register window to enter transactions you will need to click on Splits in the bottom left corner of the screen to access the Class field. This will need to be done while you are still working on the transaction – so if you are entering a check in the register enter the information (Vendor, amount, etc) and then click on Splits.
Recording Payroll expenses:

Payroll can be recorded in QB several different ways depending on whether it is processed through an outside payroll processing services or using QuickBooks Payroll service. No matter how the payroll is processed when it comes time to record payroll in QB it’s really important to remember that payroll wages eligible for forgiven are based on gross wages (before taxes are withheld) and not net paychecks (which is the money that comes out of the bank account for net paychecks or direct deposits). It is primarily your payroll reports that will prove what you spent on payroll, not the activity in the bank account.

The following examples are used for illustration purposes and are based strictly on wages, without addressing any additional payroll expenses that might be eligible for forgiveness. You will need to talk to your CPA to get advice on what is considered part of “Payroll Costs”.

Listed below are 2 examples of the way Payroll can be recorded in QuickBooks:

OUTSOURCED PAYROLL SERVICE PROVIDER

There are several different ways to record payroll from 3rd party Payroll Service Providers (ADP, FlexPay, Paychex, etc). Listed below is an example of a “Payroll Journal” report from a payroll service provider, :

The following journal entry is an example of how to enter Payroll from the Payroll Journal. Note that Gross wages and NC Unemployment (marked in green) are considered eligible for forgiveness while Employer Social security, Medicare and Fed Unemployment (marked in red) are not. Make sure to select the “PPP Loan” class only on the rows of eligible expenses so they will show up on the PPP Loan Profit & Loss Statement. The non-eligible expenses will remain unclassified.

QUICKBOOKS PAYROLL SERVICE

If you use the QuickBooks Payroll Service to process payroll you want to select the “PPP Loan” class in the upper right corner when you create the paychecks. To the right you can see what the Profit and Loss by

"PPP Loan" class will look like after the paycheck has been issued:

As you can see the FICA and FUTA taxes are included in the P&L for “PPP Loan” expenses. This is because QuickBooks Payroll Service can only assign 1 class to each paycheck so the paycheck and all associated expenses are categorized to the “PPP Loan” class. However, since employer FICA and FUTA taxes are not eligible for forgiveness a manual adjustment must be made to move the ineligible taxes out of the "PPP Loan" Class. To do this go to Company at the top menu then Make General Journal Entries. Here's how the Profit & Loss by "PPP Loan" class looks after the adjustment has been made::

Our example was easy because it is a single paycheck, but if you have several paychecks you can run a Payroll Summary Report (Reports – Employees & Payroll – Payroll Summary) to see the ineligible Payroll Taxes:

Reports -There are 2 reports you can run to show PPP Loan expenses. The first is a Summary report which will show you the total PPP Expenses, what type of expenses and what % each expense represents. The second report is a Detail report that will show you a detail of the expenses spent from PPP Funds.

Summary Report (see Example below):

Go to Reports at the top menu then Company & Financial then Profit & Loss by Class
Select Customize Report in the top left corner of the report
From the Display tab change the “From” date to the date that you received the funds and the “To” date to 8 weeks after
Click the down arrow to the right of Display Columns By and choose Total Only.
Note: this report will display a number of columns (and not all will be needed) so unclick any columns you don’t wish to show up on the report.
Select % of Expense in the bottom right corner
Click on the Filter Tab in the top center, scroll down menu on left and click on Class. Use the dropdown box to “PPP Loan”.
Click on the Header/Footer Tab and type “PPP Loan Tracking Report” in the Report Title Field. Then OK.
Note that there should be no income listed because the monies were received are considered a Loan (shown on the Balance Sheet) until it has been forgiven. This report just tracks Expenses.
Once you have run the customized report you can save the report settings by going to Memorize (located right above the report dates), name the report (i.e. PPP Loan Tracking) and select OK.
In the future, to run the report select Reports from the top menu then Memorized Reports. A list will drop down - hover your cursor on the PPP Loan Tracking Report and click on it.

Detail Report (See Example below):

Go to Reports at the top menu then Company & Financial then Profit & Loss Detail
Select Customize Report in the top left corner of the report
From the Display tab change the “From” date to the date that you received the funds and the “To” date to 8 weeks after
Click the down arrow to the right of Display Columns By and choose Total Only.
Note: this report will display a number of columns (and not all will be needed) so unclick any columns you don’t wish to show up on the report.
Click on the Filter Tab in the top center, scroll down menu on left and click on Class. Use the dropdown box to “PPP Loan”.
Click on the Header/Footer Tab type “PPP Loan Tracking Report - Detail” in the Report Title Field. Then OK.
Note that there should be no income listed because the monies were received are considered a Loan (shown on the Balance Sheet) until it has been forgiven. This report just tracks Expenses.
Once you have run the customized report you can save the report settings by going to Memorize (located right above the report dates), name the report (i.e. PPP Loan Tracking - Detail) and select OK.
To run the report select Reports from the top menu then Memorized Reports. A list will drop down - hover your cursor on the PPP Loan Tracking Report and click on it.

Summary Report Detail Report

To read about other available methods

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