Tracking PPP Expenses with Sage Intacct

They say it’s better to ask for forgiveness than permission. But with Paycheck Protection Program (PPP) loans, borrowers don’t have to make that choice because today we’re going to help you be prepared to do both. We’re going to make it easier to show the Small Business Administration that you’ve used the loan money as permitted, and we’re going to build the documentation to eventually apply for loan forgiveness, all by using Sage Intacct. 

If you qualified for a PPP loan, congratulations! While the borrowing rate of 1 percent is enough to make it worthwhile for many small businesses and 501(c)(3) nonprofits to apply for the loans, the possibility of having a good chunk of the debt forgiven is especially welcome. However, both the loan and the potential forgiveness come with some tricky requirements that are still not fully formed and may even be contradictory. As we write this, the guidance might be mutating faster than a coronavirus. For that reason, we’re not going to get into the weeds of loan rules here; there’s a boatload of up-to-date advice published on this every day. But we’ll focus on setting up your accounting in Sage Intacct so you’re best prepared to report how you spent the funds, wherever the SBA lands on the final rules.

The main objective of the PPP is to keep Americans employed; for that reason, at least 75 percent of the loan has to be spent on payroll – that is, salaries and wages and related benefits. The only other qualified uses of PPP funding are rent payments, utilities, and some kinds of interest.

On the face of it, the formula seems pretty straightforward: the loan amount is based on 2.5 months of average documented payroll expense in the prior year. Once your organization receives the funding, you spend it on eight weeks of said payroll, plus those other expense categories. No problem, right?

But the fact that the loan and forgiveness requirements are so specific and yet vague is causing ulcers for recipients of these loans. We’re going to show you here how Revolution can help you use Sage Intacct’s functionality to make reporting this simpler:

THE BALANCE SHEET

Sample balance sheet entry

First of all, do you need to open a new bank account to manage these funds? 

The short answer of course is, it depends. Your lender might require it, in which case, do so. But this doesn’t seem to be an SBA requirement, so there might be equally effective ways to track your PPP spend without possible service fees for another business checking account. In the event you want to or need to open a new account, you’ll also need a new General Ledger account to track that and, in Intacct Cash Management, you’ll also need a corresponding Checking or Savings account.

Second, regardless of whether the cash is segregated, you will need a liability account in your GL to record the PPP loan on your Balance Sheet. 

THE EXPENDITURES

But what about the qualified expenses? How do you demonstrate after the fact that you used the money for allowable purposes?

Sample Payroll entry with PPP Project dimension

This is a great use case for leveraging a Dimension in Sage Intacct, specifically a Dimension that isn’t being used for payroll, utilities, and rent. For example, you may already break out payroll by Department and rent by Location. But you’re less likely to charge those expenses directly to Projects. For organizations that subscribe to Sage Intacct Projects, we can set up a Project ID specifically for PPP funds. When the funds are received, both the bank deposit and the loan get tagged with this new Project ID. Organizations that don’t have Project tracking could use Class ID or even a user-defined Dimension for the same purpose.

Then, as funds are expended on payroll costs, the qualifying portions are tagged with that same Project ID. The same goes for rent, utilities, and qualifying interest. And they can still be tagged with Department or Location as usual.

By using that one Project ID for the funds and the qualifying expenses, we’re able to produce a financial report that summarizes the ins and outs of the PPP money, complete with drill down to the source transactions. We can also run a general ledger detail report across all accounts for just the transactions tagged with that Project, which will help greatly when it’s time to submit expenses for forgiveness.  

Incidentally, this also helps ensure that you don’t apply the same expenses against another SBA grant or loan, e.g., an Economic Injury Disaster Loan (EIDL). Not surprisingly, such double-dipping is a big party foul with the authorities.

THE TIMING

Another vexing requirement is that, to be forgiven, the loan must be spent on those qualifying expenses within eight weeks of receiving the funds. But what does “spent” mean? Well, that’s still up for discussion as of May 14 at 4:45 Pacific. Does it mean the expense is incurred, whether or not it was paid out? Or is it the opposite of that, and payment date trumps the expense date? 

The safe bet for now is to assume that qualifying expenses need to be both incurred and paid within eight weeks, which means you should be more familiar with the date at the end of your eight weeks than your own wedding anniversary. Should you make an effort to pay out your current rent, interest, and utilities before that? Absolutely. Should you run an off-cycle payroll to get every last dollar into the hands of employees? Probably. At least assume that’s what you’re going to do when you get the PPP loan. If the rules turn out to be less restrictive in eight weeks, your cash flow forecast will just be that much better.

You also might be wondering, how do you report that timing of payments on qualifying expenses? If you have an Intacct company that was set up with both cash and accrual books, you’d be able to run financial reports under either method so that you can see how your expenses and payments are doing against the ticking clock of the PPP. If your Intacct company uses the accrual-only books, Revolution can produce a GL Detail report to show all transactions tagged with a PPP Project ID, including the cash disbursements.

THE FORGIVEN

Let Revolution help you create a structure in Sage Intacct with controls and reporting to help establish your organization’s permission to claim PPP funding and optimize your application for loan forgiveness later on!