1120S - Matching AAA Sch M-2 Column a and Sch L

[mlcpa]

My understanding is that AAA Sch L (balance sheet per books) not necessary must match always AAA Sch M-2. For example, ProConnect Tax is flowing Sec 179 deduction to Sch M-2 (line 5, other deductions). In this case, final AAA M-2 (line 😎 and AAA Sch L (line 24) are not equal.

One option would be to make a positive adjustment in Sch M-2 (line 3, Other additions) to neutralized, in this case, same amount Sec 179 deduction. But I am not sure this is what IRS is looking for.

[sjrcpa · Accepted solution]

There is no AAA on Schedule L. Schedule L has Retained Earnings. Yiu are correct that AAA and Retained Earnings need not be equal. RE could be accrual, entity may not always have been an S Corp, some shareholders may have left requiring AAA adjustments, there could be Other Adjustments, etc.