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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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How to fill out form 1120S Schedule L?

Customer Question

I am trying to fill out an 1120S schedule L form. In my corporate book's balance sheet, under capital, there is a line that is "net income". This is added to the other liabilities and capital to balance out with the total assets and these balances. On the schedule L, it has sections for assets (no problem, this works fine), and then liabilities and shareholder's equity. There is a place for everything in my balance sheet EXCEPT for net income. If I leave net income out, lines 15 (total assets) and 27 (total liabilities and shareholders' equity) don't balance. How do I get these two lines to balance?

Submitted: 7 years ago.
Category: Tax
Expert:  RD replied 7 years ago.

The net income is part of the retained earnings on the balance Sheet.

RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
RD and 7 other Tax Specialists are ready to help you
Customer: replied 7 years ago.

Yes, I know that. But my problem is figuring out how to balance lines 15 and 27.

Expert:  RD replied 7 years ago.

If all your assets are correct and you have included your net income after all adjustments on Line 24 than your Line 15 and Line 27 should balance. I would suggest you to complete sch M-2 below the Sch L and transfer the balance from line 8 on M-2 to Line 24 on Sch L.

Let me know if you have any questions.

Customer: replied 7 years ago.
My accounting software (Peachtree) has in the balance sheet:

Current Assets
cash in bank $6000.00
Accounts receivable $22,000
Inventory $40,000
   (etc.)
Total assets: $245,000.00

Liabilities and capital
current liabilities
    accounts payable 11,000
    sales tax payable 10,000
    accrued payroll $4,000
Long term liabilities
    loans payable $150,000
Capital
    common stock $12,000
    retained earnings $57,000
    net income $12,000

Total liabilities and capital $245,000
(I rounded so they don't add correctly, but you get the idea.)

Form L takes all the entries EXCEPT net income. Are you suggesting adding net income to retained earnings for the tax form? Then schedule M2 line 6 won't balance with schedule L line 24 (retained earnings).
Expert:  RD replied 7 years ago.

What amount are you showing on Sch M2?

Can you list the entries from M2?

Customer: replied 7 years ago.
Reply to Renu V's Post: 1 balance at beg tax year 46,167
2 ordinary income 10,649
3 other additions 0
4 loss 0
5 other reductions 1,218
6 combine 1 - 5 55,598
7 distributions 0
8 balance 55,598
nothing in the other adjustments columns
Expert:  RD replied 7 years ago.

Line 8 on M2 should match your retained earnings plus net income. If it does not then there is an error.

From limited information, it is difficult for me to point it out.

Customer: replied 7 years ago.

Are you saying line 8 of M2 and line 24 of L are supposed to be equal to retained earnings plus net income? (Are there two different definitions for retained earnings?)

Would it be easier to attach a copy of the balance sheet and tax page in question? I still do not understand how to put in the information. Is there a way to attach a file, email or tax it to you?

Expert:  RD replied 7 years ago.

Yes, Line 8 in most cases should match Line 24 on Sch L

You can email the file to info@justanswer.com and ask them to forward to me.

Customer: replied 7 years ago.
I emailed them to be forwarded. I sent the full balance sheet & income statement and the 1120s pages related to the balance sheet so you would have everything, but it's the balance sheet where I have the issue.
Expert:  RD replied 7 years ago.

I will let you know the answer once I get the forwarded statements from you.

What was the amount on Line 24 on your last years form 1120S?

Customer: replied 7 years ago.
It was $50,070.

I'll put the files where you can grab them: http://www.imagenhome.com/x.pdf and http://www.imagenhome.com/y.pdf -- it's probably easier. Let me know when you got them so I can delete them from there.
Expert:  RD replied 7 years ago.

I have reviewed your complete tax return and financials and few things that I have noted-

Last year your retained earnings on Balance Sheet, Sch L was $46,167 but your Balance sheet as per financial statement shows the retained earnings as $57,054. So there is some adjustment or some changes that have affected the balance. This difference needs to be figured out. Normally the closing retained earnings balance on the Sch L should match with the opening retained earnings(as per financials) balance for next year

On the tax return- expenses side- You have meals and entertainment recorded twice as Travel ($2,435) and meals (50% at $1218). If you delete the figures from travel(since travel expense is recorded separately under the itemized listing)- Your profit will on Sch M-1 will match your profit and loss account.

Once you figure out the reason for the difference in retained earnings your balance sheet will balance and also Line 24 on Sch L will tie to Line 8 on Sch M2.

Let me know if you have any questions.

Customer: replied 7 years ago.
Okay, I see now. Thanks so much!
Expert:  RD replied 7 years ago.
You are welcome!

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