User Support Forum

Our church has never taken out a loan before. I was reading some of the other threads on how to handle this loan we just got. Can someone please take me step by step how to set this up? I just don't want to make a mistake. We need to have it show up in the reports so that the bank can see where the money is being spent.

The pastor receives a monthly salary and does elective deferrals to a 403(b). Can this money be applied to that? Do I need to create additional payroll item descriptions?

If we get some of the loan forgiven and or pay it off, how is that handled?

Thank you in advance for the help. We should be receiving the money on Monday.

I've covered the payroll setup under this thread:

http://www.powerchurch.com/forum/viewto ... =3&t=13978

The loan is supposed to pay salaries. Since the pastor is basically using his salary for the 403(b) there's no problem .

As far as loan forgiveness or payback that's the easy part. Here's something from another thread that covers a loan payment. If you don't have any interest payment, just eliminate the debit to the interest expense entry

Payments on a mortgage (usually) include interest expense and a mortgage liabilty reduction (principal payment). Therefore, only a portion of each payment is recorded as an expense, the balance is "debt reduction":

($1,000 payment - $300 principal / $700 Interest)
Credit XX-1XXX- Cash Account $1,000
Debit XX-2XXX- Mortgage Liability $300
Debit XX-5XXX- Mortgage Interest Expense $700

I read the earlier thread, but was still a bit confused. This is what I think I need to do. Please correct any faulty thinking!

Create a liability account 01-2420 Cares Act Loan

DB 01-1110 General Checking for amount of loan
CR 01-2420 Cares Act Loan for amount of loan

Create Income account 01-4640 Cares Act

Create Expense account 01-5070 Cares Act Salary

The "normal" payroll looks like this:
01-1110 CR - net amount of salary
01-5061 DB - gross amount of salary
01-2251 CR - Federal withholding
01-2220 CR - State withholding
01-2280 CR - 403(b) elective deferral

For the Cares Act payroll should look like this:
01-1110 CR - net amount of salary
01-5070 DB - gross amount of salary to new expense category
01-2251 CR - Federal withholding
01-2220 CR - State withholding
01-2280 CR - 403(b) elective deferral

If all payroll is done with a debit to the new expense account for Cares Act Salary, I should be able to print the payroll reports for the bank showing how much of the loan went to payroll.

Assuming that 100% of the payroll portion of the loan will be forgiven upon correct reporting, I am not clear how to reduce the loan liability in the correct manner.

I am also not clear on how the Income account 01-4640 Cares Act should be utilized.

Also, the board president told me that any of this loan money spent on utilities was also forgivable. Does anyone know if this is accurate? I am going to talk to the banker on Monday.

If that is the case, should I also create a new expense account for Cares Act Utilities?

I'm not sure why I am having such a hard time wrapping my brain around this.

Thanks again for the help!

gospeltab wrote: ↑

Sat May 09, 2020 11:39 am

I read the earlier thread, but was still a bit confused. This is what I think I need to do. Please correct any faulty thinking!

Create a liability account 01-2420 Cares Act Loan

DB 01-1110 General Checking for amount of loan
CR 01-2420 Cares Act Loan for amount of loan

Create Income account 01-4640 Cares Act
Create Expense account 01-5070 Cares Act Salary

No income account needed at this time ... the Liability account reflect the amount you will owe, the checking account reflect the money that came in. No additional expense account needed. You already have a expense account for salary. I'll talk about needing an income account later.

I am assuming you're using the Payroll module to do payroll, so you should NOT be worrying about what the final transaction will look at, you should worry about setting up a new Pay Item as referenced in the original thread.

you can create a new INCOME Pay Item using the normal expense account and title it CARES Act Payroll. This would basically be a copy of the existing INCOME item for each employee, but will show a separate total in the Item Summary report.

You are overthinking this. The requirement is that you show the funds being used as payroll. The Payroll Item Summary report showing the different pay item (CARES Act Payroll) for each employee will show that.

Assuming that 100% of the payroll portion of the loan will be forgiven upon correct reporting, I am not clear how to reduce the loan liability in the correct manner.

I am also not clear on how the Income account 01-4640 Cares Act should be utilized.

When you receive the paperwork or notice that officially gives the amount of 'forgiveness', now you can create a separate liability account, or use any miscellaneous income account you currently have. Then you would then DB the liability, and CR the income account.

Also, the board president told me that any of this loan money spent on utilities was also forgivable. Does anyone know if this is accurate? I am going to talk to the banker on Monday.

If that is the case, should I also create a new expense account for Cares Act Utilities?

A quick Google search does say that utilities are covered. As far as creating a separate expense account, it may not be needed, as you can track the amounts paid for utilities via the standard Income & Expense report. The bank would probably want to see how much was paid out since you received the funds. The I&E report will reflect that.

gospeltab wrote: ↑

Sat May 09, 2020 11:39 am

Also, the board president told me that any of this loan money spent on utilities was also forgivable. Does anyone know if this is accurate? I am going to talk to the banker on Monday.

Yes, that and rent or mortgage interest are forgivable - with a caveat. At least 75% of the PPP loan amount must be used on personnel (1099 contractors do not count) in order for the entire loan to be forgiven. Here's a link to a good article on this:

https://bench.co/blog/operations/ppp-loan-forgiveness/

I am still confused about how to create accounts for the PPP Loan forgiveness reports. I have set up the loan as a liability but then I am stuck-

Do we set up separate CARES Act accounts for Payroll and Utilities? If you could show an example of the account setup and how it looks to post payroll and utilities as far as debits/credits that would really help me and others. The goal is to be able to print Activity Reports showing what the funds were used for.
Thank you!

Lolbkpr wrote: ↑

Wed Jun 10, 2020 8:01 pm

I am still confused about how to create accounts for the PPP Loan forgiveness reports. I have set up the loan as a liability but then I am stuck-

Do we set up separate CARES Act accounts for Payroll and Utilities? If you could show an example of the account setup and how it looks to post payroll and utilities as far as debits/credits that would really help me and others. The goal is to be able to print Activity Reports showing what the funds were used for.
Thank you!

You do NOT need to create separate expense accounts to do this. You need to create a new PAY ITEM in Payroll. You will use the same expense accounts as normal since you deposited the check in normal checking, and showed the funds as the liabiity. The PAY ITEM will be titled something like Salary - CARES, this will track the amounts paid out for Payroll using the Payroll reports.

In addition, you really don't need to create another expense account for utilities that will only be used for one year (or less) but will stick around for the next four years in the system. Your normal Income & Expense report for the month will show how much was paid out for utilities. So if you get the loan proceeds in May, your income & expense report will show funds going out to pay for utilities as normal. If you need details, you can print out the vendor transactions for the utilities.

Your posting will be exactly the same as normal. No differences.