One factor that complicates the accounting of ERC is the time to apply for and receive credit. Companies can record receivables for credits that they are eligible for but have not yet received, or debts for credits received before incurring related payroll costs. Not surprisingly, as we saw with the Paycheck Protection Program (PPP) under the CARES Act, generally accepted accounting principles (GAAP) do not provide specific guidance for ERC accounting. The ERC can be considered similar to a government grant, which is an issue not addressed by GAAP for a for-profit entity.
As a result, a for-profit entity must use other accounting guidelines. The Employee Retention Credit (ERC) was created under the CARES Act to help companies that have been adversely affected by COVID-19 retain their employees. Congress approved programs to provide financial assistance to companies during the COVID-19 pandemic, including the employee retention credit (ERC). For those who used the ERC, it is important to understand when credit should be recognized as income and the appropriate accounting treatment and disclosures regarding credit recognition.
Your bank may have been able to take advantage of the Employee Retention Credit (ERC) program, which was created under the CARES Act. The ERC provides eligible employers with per-employee credits based on qualified wages and health insurance benefits paid.