1120S-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.

  • Retained earnings - Unappropriated
  • Accumulated adjustments account (S Corp)
  • Undistributed taxed income (S Corp)
  • Other adjustments account (S Corp)
  • Retained earnings timing difference (S Corp)

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:

  • Accumulated Adjustments Account
  • Undistributed Previously Taxed Income
  • Accumulated Earnings and Profits
  • Other Adjustments Account
  • Retained Earnings Timing Differences

The last account, Retained Earnings Timing Differences, is used to track S Corporation book / tax timing differences. It is not reflected in the Schedule M-2 on Form 1120-S, Page 5. If you reconcile Schedule M-2 to Schedule L on a tax basis, the Retained Earnings 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 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.

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