Under IAS 20 there is known diversity in practice and at times the classification of the proceeds as cash flows from financing activities may also be acceptable.The PPP loan proceeds, if using IAS 20 accounting should be classified as cash flows from operating activities since the related costs being defrayed are operating costs.Because US GAAP would not allow netting against expenses if this method is used, disclosure of line items where the income has been netted would be required in a US GAAP financial statement. IAS 20 states that the income when recognized can be presented as a credit in the income statement under the heading of “Other Income” or a reduction of the related expenses.When there is “reasonable assurance” (this is equivalent to “probable” under US GAAP) that the criteria for forgiveness will be met, the deferred income is taken into income on a systematic and rational basis over the periods when the related costs are recognized.Proceeds received are accounted for as an income grant and recorded as deferred income (a liability).If accounting for the PPP Loan and Forgiveness as a Government grant earned through compliance with forgiveness criteria: Amounts forgiven would be a noncash financing activity.Cash flow treatment would show the receipt of the PPP loan proceeds as cash from financing activities.Income statement presentation as either operating income or other income is acceptable since US GAAP does not say where it should be located.Gain from forgiveness is presented on its own line in the income statement.

Any amount forgiven is recorded as gain from extinguishment/forgiveness of debt once legally released from the obligation.

Recognize the liability and accrue interest over the term of the loan.

If accounting for the PPP Loan and forgiveness following US GAAP guidance for debt (ASC 470): FASB gives us some direction in the following section:įASB ASC 105-10-05-2 If the guidance for a transaction or event is not specified within a source of authoritative GAAP for that entity, an entity shall first consider accounting principles for similar transactions or events within a source of authoritative GAAP for that entity and then consider non-authoritative guidance from other sources. If you have taken the time to search through the FASB Codification (FASB) for the appropriate US Generally Accepted Accounting Principles (US GAAP) accounting you will find that there is no specific guidance on a for profit entity accounting for a forgivable loan from the government.

The PPP Loan recorded as debt on our balance sheet is causing us to be in violation of covenants with our bank, what should we do?.How should we account for the forgiveness of our PPP Loan?.Here are some of the most common questions we are hearing from companies: We have been receiving many questions lately about the PPP loan and forgiveness requirements.

Personal loan forgiven journaly entry