If your organization applied for or has received the Employee Retention Tax Credit you may now be wondering how to record it in your financial statements. For nonprofit organizations the accounting treatment will be similar to how you record other government grants. The ERC is considered a non-exchange transaction with a governmental entity and is treated as a conditional contribution.
At the end of your fiscal year you will want to consider the circumstances and timing of the ERC process. If your organization has not yet met the conditions of the ERC the grant will not be reflected in your accounting system or reports, but some disclosure might be provided in the footnotes of your financial statements. If you organization has met the conditions necessary for the ERC you will most likely make a debit to cash or accounts receivable and a credit to grant revenue.
Keep in mind that like other government grants you must be careful that you don’t assign your payroll costs to more than one grant. If you’ve assigned payroll costs to a different government grant you cannot also apply them to the PPP loan or the ERC.
If you have questions about how to appropriately account for or disclose the ERC, contact me so we can go over your unique circumstances!