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jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3029
Experience:  I've prepared all types of taxes since 1987.
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I use quickbooks for my S corp. on my quickbooks generated

Resolved Question:

I use quickbooks for my S corp. on my quickbooks generated balance sheet it shows the retained earnings and then shows a separate line for net income. On the actual tax return, obviously it doesn't have a line to enter the net income on the balance sheet. Should I combine the existing amount of the retained earnings and net income on the quickbooks balance sheet and put that combined total on the irs balance sheet on the retained earnings end of year entry? If I run the balance sheet for jan1, it has those two combined anyway.
Submitted: 5 years ago.
Category: Tax
Expert:  jgordosea replied 5 years ago.

Greetings,

 

Retained earnings (RE) at the end of the year is the beginning of the year (BOY) retained earnings plus the net income for the year minus any distributions of earnings for the year.

 

Most tax software computes the RE based on the amounts you entered for BOY RE plus the net income based on your revenue and expense entries minus your enties of distributions of earnings to shareholders.

TurboTax Business has that type of entry in the interview mode where BOY RE is entered and the rest is computed by the program.

If the end of year RE does not match your books that is a sign that not all the entries for the revenue and expense entries and your enties of distributions were done correctly.

 

I hope this helps for entering the RE in your Form 1120S.

Best wishes.

 

 

 

Customer: replied 5 years ago.
The quickbooks balance sheet is in balance, but under the equity section it shows a line item for retained earnings and a separate line item for net income. Again, both are under the equity section of the balance sheet and the quickbooks balance sheet is in balance.
You comment.. "Most tax software computes the RE based on the amounts you entered for BOY RE plus the net income based on your revenue and expense entries minus your enties of distributions of earnings to shareholders" seems like you are saying yes..add the retained earnings and net income and enter that total on the end of year retained earnings line 24, column d, on the Schedule L of te 1120S.
Is that what you are saying?

If i enter just the Retained earnings amount from the quickbooks end of year balance sheet, the amount for net income has to go somewhere on the schedule L, otherwise it would not be in balance and yet my books are balanced.

Expert:  jgordosea replied 5 years ago.

Hello again,

 

What I am saying is that you do not enter the end of year RE in TurboTax Business.

The program will compute the net earnings for the end of year using the other items that you enter.

 

I opened my copy of TurboTax before I answered the first time in order to verify that is how it is done in the TurboTax program. You do need to enter the beginning of year RE.

 

I hope this helps to clarify for you.

 

Customer: replied 5 years ago.
I am using turbo tax business and it does specifically ask for you to enter the End of Year retained earnings as reported on your accounting books and records.

I wish i could send a screen shot, but i couldn't add it here to show you.

Ok, let me ask the question this way, since i must enter the end of year retained earnings (at least in my version), I enter only the amount shown as "retained earnings" on the balance sheet. Now the balance sheet is out of balance by the exact amount of the net income (which also appears on the quickbooks balance sheet under equity). So on which line do i enter the net income? Our choices on the Schedule L are
16 Accounts payable
17 Mortgages, notes, etc
18 Other current liabilities
19 Loans from shareholders
20 Mortgages, notes, etc payable in one year
21 Other Liabilities
22 Capital stock
23 Additional paid-in Capital
24 Retained earnings
25 Adjustments to shareholders equity
26 Less cost of treasury stock

The amount of the new income has to go somewhere or it is impossible to balance the balance sheet.
Dean
Expert:  jgordosea replied 5 years ago.

Hello again,

 

Retained earnings (RE) at the end of the year is the beginning of the year (BOY) retained earnings plus the net income for the year minus any distributions of earnings for the year.

 

So, you would include the current year net income plus the retained earnings from the prior year less any distributions for the year.

That is, combine the existing amount of the retained earnings and net income on the quickbooks balance sheet and put that combined total on the Schedule L balance sheet on the retained earnings end of year entry.

 

I hope this clarifies for you.

 

 

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3029
Experience: I've prepared all types of taxes since 1987.
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