Lacerte calculates the ending balance of retained earnings for the balance sheet Schedule L, Line 24, using the Schedule M-2. You can view the Schedule M-2 on the last page of Form 1120S.
How Schedule M-2 calculates retained earnings:
The Schedule M-2 calculates the beginning retained earnings as follows:
Beginning retained earnings
- Plus net income per books (from Schedule M-1, Line 1)
- Plus additions to other retained earnings
- Plus other additions to carry to Schedule L
- Less distributions and deductions
= your ending retained earnings, Schedule L, Line 24, column (d).
The calculated value on Schedule L, Line 24, column (d) prints on the balance sheet in the ending column for ending retained earnings.
Where to enter retained earnings at beginning of year
Your beginning retained earnings will typically roll over from last year's return. If the beginning balance is blank or incorrect, follow these steps to enter the right amount:
- Go to Screen 29, Balance Sheet.
- Under Liabilities & Equity, enter the correct amount in Total retained earnings [O].
Where to enter net income (loss) per books
This amount is calculated on Screen 31, Schedule M-1, M-3 under section Schedule M-1.
If the entry is incorrect, enter the right amount in the Net income (loss) per books (memo only) field.
Where to enter additions to other retained earnings
To enter any additions to retained earnings:
- Go to Screen 32, Schedule M-2.
- Under section Other Retained Earnings (Schedule L), enter the right amount in the field labeled Additions to Other Retained Earnings.
Where to enter accumulated adjustments account (AAA) to other additions
- Go to Screen 32, Schedule M-2.
- Locate section Accumulated Adjustments Accounts (Schedule M-2).
- Enter the correct amount in the field labeled Amount of Other Additions to carry to Schedule L.
Where to enter distributions and reductions
Lacerte calculates the following distributions and reductions:
- Distributions from AAA
- Distributions from Other Adjustments Account (OAA)
- Dividend Distributions from accumulated earnings and profits (E&P) on Sch. K
- Distributions in excess of Schedule M-2/E&P accounts
- Reductions to Other Retained Earnings
- AAA Other Reductions to carry to Schedule L
You can enter any necessary distributions in the following screens:
- Under Screen 8, Distributions, Loan Repayments
- Enter the amount in Distributions (including cash) other than dividends.
- Under Screen 27, Other Schedule K Items
- Enter the correct amount under section Items Affecting Shareholder Basis in the field labeled Property distributions.
See 1120S Entering Property Distributions Other than Dividends (Including Cash) for more information
Additional information:
- Entries you make in Other Additions and Other Reductions to the AAA don't automatically carry to Ending Retained Earnings on Schedule L.
- If the total ending balance of Schedule M-2 doesn't equal the ending balance of Retained Earnings on Schedule L, the program automatically generates the Schedule M-2 Reconciliation on the Worksheets tab reconciling the difference between Schedule M-2 and Schedule L.
- To override the calculation of ending retained earnings, enter the amount in Total retained earnings [O] - Ending (Screen 29, Balance Sheet, code 266). Enter a -1 for 0.
