Part 21 – The CARES Act – A Debt Or A Grant? Part 2

Dear Clients and Friends,

This is a follow-up to the previous communication “Part 15 – The CARES Act – A Debt Or A Grant?”  There are a couple of available options that could have a significant impact on the Company’s financial statements.  Recently, the AICPA provided specific guidance on the scenario’s below:

If the Company elects to follow the accounting as a loan and is relieved of repayment of the loan in full or part:

  • The loan would be recognized on the Statement of Operations as a gain on loan extinguishment.
  • On the Cash Flow Statement, debt proceeds would be shown as a financing activity and the forgiven amounts disclosed as a non-cash financing activity.

If the Company elects to follow the accounting for a government grant:

  • The loan forgiveness would be recognized on the Statement of Operations and shown under a separate (or general) heading as “other income” or,
  • The loan would be recognized as a reduction of the related expense in the statement of operations.
  • On the Cash Flow Statement, the loan proceeds would be shown as an operating activity or as a financing activity.

It is important to note, you may be able to record the forgiveness portion of your PPP loan as income in your financial statements before it is approved by your lender (or the SBA) under the guidance for treating the PPP loan as a grant.

Many of our clients have asked us for help preparing for the actual loan forgiveness process. The real benefit is we are able to proactively identify and mitigate any potential surprises. If you would like assistance preparing for PPP loan forgiveness, please reach out to your BKM Sowan Horan team member.

Mike Barber

Audit Partner