1120-US: Schedule L end-of-year retained earnings to reflect the end-of-year Schedule M-2 balances (FAQ)

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Question

How can I get an 1120 S Corporation's Schedule L end-of-year retained earnings to reflect the end-of-year Schedule M-2 balances?

Answer

There should be no amounts entered in the following end-of-year fields in Screen L-2.

Additionally, CS Professional Suite accounting application tax code 467, 468, 469, or 470 should not be assigned to these fields.

By leaving these fields blank, the Schedule L end-of-year retained earnings reflect the sum of the Schedule M-2 accounts from the Retained Earnings Reconciliation Worksheet.

The Schedule M-2 accounts on the Retained Earnings Reconciliation Worksheet are:

The last account, Retained Earnings Unappropriated / Timing Differences, is used to track prior C Corporation retained earnings and S Corporation book / tax timing differences. It is not reflected in the Schedule M-2 on Form 1120S, Page 5. If you reconcile Schedule M-2 to Schedule L on a tax basis, the Retained Earnings Unappropriated / Timing Differences account may be used. If you reconcile Schedule M-2 to Schedule L on a book basis, this account should never be used, and, therefore, there should be no amounts entered in the Retained Earnings Unappropriated / Timing Differences column in Screen Ms.

If you are preparing Schedule M-1 and want the retained earnings shown in Schedule M-2 to agree with the end-of-year retained earnings shown on the balance sheet, select a code from the fieldview in the Sch M-2 column in the statement dialogs for the applicable fields in Screen Ms. If you have book / tax depreciation differences, book / tax gain or loss differences, etc., select a code from the fieldview in the Carry book/tax difference to Schedule M-2 field in Screen Ms. If you want UltraTax CS to transfer the Schedule M-1 differences to the same Schedule M-2 account for all S Corporation clients, select the desired account in the Setup > 1120 Corporation > Federal tab > Other Return Options dialog > Return Presentation tab, and do not complete the Sch M-2 column or the Carry book / tax difference to Schedule M-2 field.

If you are preparing Schedule M-3 and want the retained earnings shown in Schedule M-2 to agree with end-of-year retained earnings shown on the balance sheet, select a code from the fieldview in the Sch M-2 column in the statement dialogs for the applicable fields in Screen M3S-2 in the Book/Tax Differences section.

Related topic: 1120-US: Form 1120S - common FAQs

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