Discussion:Reconciling 1120S Sch L, Sch M-2, and AAA
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Discussion Forum Index --> Accounting Questions --> Reconciling 1120S Sch L, Sch M-2, and AAA
| 10 March 2007 | |
| This might qualify as either tax question or an accounting question, so I have posted it on both forums.
I have inherited a return for an S corp. I'm not sure that the past preparers have always correctly reported on Schedule L or Schedule M-2 or used ProSeries's functions correctly. The problem I keep seeing is that the balance sheet is way out of balance, and there is no obvious reason. If the Accumulated Adjustments Account is essentially the equivalent of a retained earnings account (if what I read in Discussion:Accumulated Adjustment Account is correct), can anyone offer insight as to why ProSeries has a separate retained earnings calculation that shows up on Line 24 of Schedule L and that figure is wildly different from the AAA figure in Schedule M-2? | |
| 10 March 2007 | |
| AAA is GAAP for retained earnings c corp...accounting lesson over...hehe
If the corporation does not have to prepare or reconcile a retained earnings or (AAA) account for reasons of net assets not being enough, then perhaps it is prior year adjustments not reconciled that is causing the discrepancy...??? | |
| March 10, 2007 | |
| This will mess up your head, Frank. ProSeries makes internal calculations from what I can tell to compute the total RE that end up on the L. It will include prior C RE plus AAA as an S, all in one total. So if you know either the prior C RE if they were a C, or the AAA, you know the other. The AAA is reported on M2 so that you can at least see those calcs, right or wrong. | |
Msmith7305 (talk|edits) said: | 10 March 2007 |
| When you say "out of balance" I assume you mean that AAA is not equal to RE per the Schedule L and not literally mathematically out of balance...i.e assets do not equal liabilities plus equity.
AAA is, in the ususal sense, the TAX basis RE. Look at the ProSeries Schedule M2/RE Worksheet. You will see a reconciliation of AAA to RE. Notice the "timing differences" column. This will be impacted, for example, when you have a book vs tax depreciation (such as 179 on tax return and no 179 taken on books) difference. Numerous items can impact this difference between AAA and RE besides timing differences. You need to get as many of the prior returns as possible to try and determine what has caused the difference. | |
| 10 March 2007 | |
| Thanks. The question is a jumble as is my head on this return.
To clarify, this has always been an S corporation, so there is no prior C RE to complicate things. The prior preparer (who was in my firm, so I have the electronic carry-over figures) put whatever the CEO wanted on the return. CEO died and the prior preparer left, now I am trying to figure out what happened. In ProSeries the RE amount and the AAA amount are not mathematically the same. Even when I override the return to make RE = AAA, I still have a problem in that Assets < Liab + Equity, but the difference is not as dramatic (1000 versus 40000). I'll double-check the depreciation, but there has been no ยง 179 election. | |
| 13 March 2007 | |
| Msmith: Once the difference is determined, where does that get booked on Proseries? Seems like there are not too many spots to put that difference in. | |
Msmith7305 (talk|edits) said: | 13 March 2007 |
| If you will go to the Schedule M2/RE worksheet you will find the coulmns I addressed in the prior post. If you right click on the number at the top of each column it will give you the cross-reference from whence it came. Once you find the source, you can put in the correct beginning numbers. All you need to know are the correct beginning of the year book retained earnings and the beginning of the year tax difference from book to get the beginning AAA. Doesn't matter which 2 amounts you know, if you know 2 of the 3, you can simply calculate the 3rd. | |
| 13 March 2007 | |
| Isn't that a problem though if the beginning AAA does not match the ending AAA from the prior year? | |
| 13 March 2007 | |
| If corp has been S corp since day one, AAA may differ from R/E due to: 1) Timing diffs. See Pro Series Sched M-2 worksheet. 2)If client ever took distributions in excess of AAA it could drive retained earnings negative while AAA remains at $0. A solution in Pro Series (if this is the problem, which it may not be) is to record a debit on Schedule L Line 25 and explain on supporting schedule. | |
| 13 March 2007 | |
| Yep - that's what I did.So I have a large prior period adjustment for this client now. I do not have access to the old workpapers but I think the retained earnings is way off base for the prior year (s). QB indicates $61K and the Schedule L for prior year is showing $131K. I think that the book to tax adjustments may have been run through the Schedule L instead of the M's since I don't see anything in the M except for a little in M&E -- also that's the only adjustment to the AAA account -- the meals. Yet there should have been depreciation differences which don't show up anywhere except for when I compare the the QB BS to the TR. What I'm worried about is the $70K adjustment in Line 25 -- which still does not get my RE to where it should be on the TR --- and also my AAA account is way negative. | |
