Loan or Income: How should my PPP loan be classified?

For your business, is the PPP program a loan or income? As 2020 is coming to a close, organizations are starting the PPP loan forgiveness process. You can check all the boxes that indicate you have fully complied with the regulations. You can produce all the documentation to support the forgiveness application. But you can’t control the timing of the loan forgiveness process. So, if your loan isn’t forgiven by year-end 2020, is it a loan or income?

The AICPA addressed this question in its Technical Questions and Answers Section 3200: Long-Term Debt. The question is – if you have satisfied all the requirements and it will ultimately be forgiven, should it be recorded on your balance sheet as a loan?

Based on the AICPA guidance, you might conclude that it is in substance a government grant that is conditional based on the requirements being met and once those requirements have been met, recognize it as revenue. How do you know if your business should record the PPP funds as income? I recommend you review the guidance in FASB ASC 958-605 and read the AICPA’s Technical Q&A and talk with your CPA to determine how your organization should record the funds.