I created a liability account and put received “PPP loan” money into it.
However, now that my “PPP loan” has been forgiven, i cant seem to figure out how to get it off my books without it showing on my P&L report.
Do i create an out of balance journal entry?
Not sure how else or where else to debit/credit this.
Is there a way to make an account that is ignored?
The guide at Build a chart of accounts | Manager mentions adding a Non-operating income group, but i dont see the option anywhere.
The PPP is something you should discuss with your accountant. Experts disagree whether the forgiveness should be reported as income, even though not taxable, as loan forgiveness normally is. That debate isn’t for this forum.
One way to clear the liability is with a balanced journal entry. Debit the loan liability account and credit Retained earnings or another suitable equity account. The theory behind this approach is that the government has converted the loan into an investment in the business. The result produces the correct result for profitability, but it is unquestionably unusual. Where the credit ultimately goes depends on your form of organization. It could become an owner’s draw or a distribution to capital accounts, as examples.
Understand, this is not tax advice, but a method for accounting for this bizarre program in Manager.
By the way, income groups are created under Chart of Accounts in Settings, the same way accounts are. That is covered in the Guide you mentioned.
Thanks for the quick reply!
Retained earnings are the cumulative net earnings or profits.
What i was looking for is a way to account for the forgiveness so that it doesnt show on balance sheet or P&L. may not be possible…who knows.
What I described will do exactly what you want. Retained earnings is somewhat more complicated than your simple explanation. In this case, it functions as a holding account for profits prior to either transfer to other equity accounts or direct draw.
It is not possible to account for PPP forgiveness without affecting the balance sheet, because the liability must be cleared. The question is whether you pass the effect through a revenue account on the way to an equity account and ultimately to owners or bypass the revenue account because the forgiveness is not taxable.
Ultimately, PPP forgiveness is an outright gift that cannot be handled using normal accounting practices. That’s why experts disagree how to record it. The method I outlined has the advantage of matching your financial accounting perfectly with your tax accounting. And I emphasize again that it accomplishes your goal of keeping the forgiveness off the P&L.