Congratulations on receiving the much needed Payment Protection Program (PPP) funds! So now what? The best time to start tracking how those funds are spent, and to make sure that your information is current and accurate, is now!
QuickBooks is an excellent tool to track PPP funds... but it can also be confusing and intimidating if you're not sure how to go about tracking the funds in the simplest, most efficient way. You're certainly not alone! We've been hearing from a lot of our clients who are looking for guidance on the next steps to take so we've prepared this guide to help you choose the best method (s) for your situation, as well as provided detail instructions on how to record transactions and prepare reports.
So, why is tracking expenses so important? Well when it comes time to request that the PPP Loans are forgiven the lender is going require detailed documentation for all transactions eligible for forgiveness during the 8 week period following the date the PPP funds were received. Being able to run a PPP Expense Tracking report or bank register report will make it easier and cleaner to account for how those funds have been spent. Additionally, because PPP loan forgiveness requires that at least 75% of the forgivable portion be spent on qualifying payroll expenses it will be important to track the different type of expenses, and what % they represent of the overall total expense.
No matter which method you use it will be important to keep documentation (copies of paycheck stubs, payroll reports, check stubs, etc.) to support any reports produced from QB.
If you are using QuickBooks Payroll Service then you can run a "Payroll Summary" report that will show you a breakdown of the Payroll Expenses and from there you can determine eligible expenses (i.e. Gross Wages and SUTA) vs. non-eligible expense (employer FICA and FUTA). When QuickBooks Payroll processes paychecks it automatically records the payroll tax liabilities on the Balance Sheet and the company-paid payroll taxes as expenses on the Profit and Loss Statement. In regards to PPP forgiveness you do not have to worry about the Payroll Tax Liabilties on the Balance Sheet - just the company payroll taxes that have been paid. (see the "QuickBooks Payroll Service" section halfway down the page)
If you are using a 3rd Party Payroll service you will have to refer to their payroll reports to calculate eligible expenses. It's important to understand that you cannot use the amounts that are being drafted from the bank account (such as paychecks, direct deposits, or Tax Liability payments) to determine what your payroll expenses eligible for forgiveness are. (see the "3rd Party Payroll Service" section halfway down the page)
Here’s a summary of some of the different methods you can use to track Payroll Expenses and PPP Loan Expenses:
CLASS TRACKING
This is probably the best way to track the loan. This method will allow you to tag PPP Expenses and then run a Profit & Loss Statement to track just the PPP qualifying expenses. Class Tracking can be used in conjunction with setting up a separate bank account, or using a subaccount in QB, providing an additional layer of tracking. Important Note: if you are currently using the Class Feature in QB you won’t be able to use this method since QB only allows 1 class per transaction. Learn about Class Tracking
OPEN A NEW BANK ACCOUNT
You can open a new bank account to track PPP funds. A separate bank account avoids co-mingling of funds and creates a clear trail for when you later apply for forgiveness. However, from a tracking perspective in QB using this method alone has limitations. While you can print out the Bank Register in QB you won’t be able to run a report that will categorize or total the different type of expenses (payroll, rent, utilities) so you will need to track that separately with an Excel spreadsheet or ledger. You can also use Class Tracking to categorize expenses and provide the % each expense represents of the overall total. Learn about Setting up a New Bank account
SET UP SUBACCOUNT (FOR BANK REGISTER) IN QUICKBOOKS
Since it may not be possible or optimal to open a new bank account, instead you can set up a “subaccount” in QB which will create a separate register, just as an actual bank account would. The advantage of a subaccount is that you do not need to actually transfer the funds – you just need to code PPP transactions to the subaccount instead of main bank account. Learn about setting up a new Subaccount in QuickBooks
CUSTOMIZED PROFIT & LOSS STATEMENT (BY DATE RANGE)
Customize a Profit & Loss Statement to track specific expenses (i.e. payroll and rent) for the 8 week period of PPP Loan forgiveness. This has some limitations in that it doesn’t allow for splitting expenses but it is the simplest option. Learn about running P&L by Date
Want a PDF Copy?
Sometimes it's just easier to download or print out a file than have to view it on a computer screen so we are now offering the option of purchasing this 17 page PDF file. The PDF includes all of the PPP Loan Tracking information on this website, including screen snapshots and detailed instructions. To purchase: