Reconciling Schedule L and M-2 Equity Accounts for 1120 S Corporations

Show expandable text

New (tax) year, new help!

Fixed Assets and UltraTax CS 2023 help is now on Help and Support. We're still moving articles, but you can find most content for the 2023 tax year there. Continue using the Help & How-To Center for tax years 2022 and older.

This article will help you reconcile the Schedule L and M-2 Equity Accounts when the Schedule M-2 is reported on a tax basis.

The Retained earnings - Unappropriated/Timing Differences (REU) fields in Screen Ms are used to reconcile the Schedule M-2 balances to the total retained earnings on Schedule L. If you reconcile your Schedule M-2 on a book basis, you will probably not use the REU account. If you reconcile your Schedule M-2 on a tax basis, the REU account is helpful in tracking book / tax timing differences.

The sums of the end of year Schedule M-2 and REU accounts transfer to the Schedule L end of year Retained Earnings. If you do not use the REU account, you will need to force the end-of-year retained earnings field in Screen L-2.

Use the following procedure to begin tracking the book / tax differences between the Schedule M-2 and the Schedule L retained earnings accounts.

  1. Enter the sum of the prior year differences between the Schedule M-2 accounts and the Retained Earnings account in the Balance at beginning of year (REU) field in Screen Ms.
  2. Enter code R in the Carry book/tax difference to Schedule M-2 field in Screen Ms to transfer the current-year book / tax differences related to depreciation, amortization or gain on sale of assets to the REU account.
  3. Enter code R in the Sch M-2 column in the applicable statements in Screen Ms to transfer any other book / tax differences to the REU account.
  4. Enter the detail of the prior year differences between the Schedule M-2 and Schedule L retained earnings accounts in the Reconciling detail statement. UltraTax/1120 prints this detail and the current-year book / tax differences coded to the REU account in the Schedule M-2 and Schedule L Ending Retained Earnings Reconciliation statement.
  5. UltraTax/1120 proformas the data entered in the Reconciling detail statement and the current-year book / tax differences coded to the REU account to the following year.

Was this article helpful?

Thank you for the feedback!