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Accounting Tips for Small Businesses COVID Assistance

Since the COVID-19 pandemic began, businesses everywhere have been struggling. The last few months have been particularly hard on small businesses, who generally operate on narrow profit margins and without large cash reserves. Mandatory closures and social distancing limitations have created unique struggles, forcing many small business owners to turn to the Economic Injury Disaster Loans (EIDL) and the Paycheck Protection Program (PPP) for support.

If you’ve received a PPP loan or EIDL assistance, it’s time to brush up on your accounting skills or ask your local accountant.

To help us out, McKay Tax in Roy, Utah talks about some practical tips you can use:

Record All Assistance Properly

Good accounting starts with the basics, and that means understanding the nature of each type of assistance you receive and the purposes for each. Keep in mind the following:

  • The PPP is a forgivable loan, but you can’t treat it as anything but a long-term liability until you’ve received definitive confirmation that the debt has been wiped clean. 
  • The EIDL advance is a grant that doesn’t have to be repaid, so you should put that down in your books as “Other” income and note that it is non-taxable.
  • The bulk of the EIDL is not forgivable, so make sure that you record it as a debt that has to be paid back over the long haul.

You don’t have to make things complicated, but you definitely want to make sure that you have each type of assistance recorded properly in your books.

Track Your PPP Expenses Carefully

If you want loan forgiveness for your PPP assistance, you are eventually going to have to submit proof showing that the funds were used only for approved expenses, which include payroll costs, your employees’ salaries, group healthcare benefit premiums, business insurance premiums, mortgage or rent bills, utility costs, and interest on your other debts.

The easiest thing to do is to put your PPP money into a totally separate business account and only access it as needed for the allowable uses.  If you haven’t already done that, however, don’t panic. All you have to do is clearly document your actions. This means:

  • Annotate each transaction using PPP funds in your books.
  • Include the basics: The date of each transaction, method of payment, amount, and the category into which each expense falls.
  • Keep an invoice, receipt, or canceled check for each payment with your tax documents.

Ultimately, you want to keep your books as simple and clean as possible, and the need for accurate records has probably never been more important for small businesses everywhere. Not sure about what to do? Talk to your local accountant for more advice!