No, that is not correct.
Let's try a short example. Assume the corporation is 4 years old. Over those four years, the corporation earned $900 of income. In Year 5, the corporation had $100 of earnings, and distributed $1250 in S-Corp distributions. The Retained Earnings on Schedule L, line 24 would show -900 at the end of year 4. In year 5, the beginning Retained Earnings would be -900, plus $100 of income, less $1,250 of distributions, for an ending Schedule L retained earnings balance of -$250 on line 24. The S-Corp shareholder would have a distribution in excess of basis of $250, which he would report as a gain on his tax return in year 5.
At the beginning of year 5, the AAA account would be $900 line 1, column a. The $100 of income would be shown on Line 2, column a. Line 6, column a would show $1,000 as a subtotal. Line 7 would show $1,250 as distributions. What I do then, to avoid a negative on Line 8, is go back to Line 3, other additions, and put in $250 as distributions in excess of basis. Then the subtotal on Line 7 would be revised to $1250, less the $1250 distribution, showing a ZERO ending balance.
I have seen in practice some accountants who let the AAA account go negative, but this is not correct, as the distribution in excess of basis zeros out the negative amount and allows for further distributions.
Continuing my example from above, if in Year 6, the corporation makes $75 of income, and distributes $25, the distribution would not be excess of basis. The AAA account (all in column a) would show zero on line 1, line 2 would show the income of $75, line 5 would show a subtotal of $75, and line 6 would show the $75 of basis, then line 7 would show the $25 distribution, and line 8 would show $50 of remaining basis.
For the Schedule L in Year 6, the beginning balance of retained earnings would be -$250. This amount, plus $75 of income, less $25 distribution, would show an ending Schedule L retained earnings of -$200.
The difference between the Retained Earnings balance and the AAA account is the amount of distributions in excess of basis. So, if you take Retained Earnings PLUS (you have minus) the distributions in excess of basis, you will have the amount in the AAA account.
I hope my example makes things clear. If not, please let me know. I will be in and out this afternoon. so just let me know.