Payments after full depreciation

[Mike Polacek]

Questioning proper balance sheet accounting for an S Corp tax return.  There is equipment that has been fully depreciated however payments are still being made.  There is a profit on the return but obviously the dollars representing the payments are not in the bank.  I'm assuming the total of the payments need to be taken into consideration to bring the retained earnings back in line.

Is this correct or am I way off base?

[abctax55]

Those payments would have reduced the cash shown on the trial balance you should have before even starting the return.

[Mike Polacek]

The bank account balance reflects the payments being made.  As they don't reduce the bottom line profit of the company, the retained earnings on the balance sheet therefore becomes out of whack.  I'm trying to determine if those payments should be reflected somewhere to bring everything back in line.

[abctax55]

DO you have a trial balance - which by definition, balances.   

If not, trying to prepare the tax return balance sheet is an exercise in frustration.

[qbteachmt]

"however payments are still being made. There is a profit on the return but obviously the dollars representing the payments are not in the bank."

Where's the Debt entered? You are supposed to be carrying a Liability balance that gets reduced by the principal component of each payment.

It's like this:

I take on $50,000 debt to buy a $50,000 forklift.

Now I own and use and depreciate the forklift.

That has nothing to do with the Debt. The payments are the Asset reduction and the Liability reduction.

Did someone forget to enter this Debt on the Balance Sheet? Because nothing here affects Equity. They affect each other. Asset goes down and Liability goes down.

Of course, you likely also have an interest expense component.