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Schedule L balance sheet is out of balance on Form 1065, 1120S, 1120 or 990 in ProSeries

by Intuit•1• Updated 3 months ago

This article will provide tips and common areas to review when the Schedule L balance sheet is out of balance, for Form 1065, 1120S, 1120, or 990 Part X.

Forms 1065, 1120S, and 1120:

  • There's a correct order for completing a business return in ProSeries. It's important to complete the return in this order:
    1. Complete the rest of the tax return.
    2. Complete Schedule M-1.
    3. Complete Schedule M-2.
    4. Complete Schedule L.
  • Make sure all of the numbers have been entered correctly, with no transpositions.
  • Review the signs for positive and negative amounts, and make sure they're entered correctly.
  • Make sure the source balance sheet (financial reports) are in balance.
  • Beginning balances are found on the previous year's tax return as ending balances in Schedule L, column (d), or if this is a new company, from the Financial Report Balance Sheets.
  • Make sure all assets in the balance sheet are listed as the book balance (Schedule L- Balance Sheet Per Books).
  • Beginning and ending inventory flow from Form 1125-A, Cost of Goods Sold.
  • Review the accumulated depreciation on depreciable assets. Prior year's accumulated depreciation + Current year's depreciation expense = Total accumulated depreciation.
  • Retained earnings should include current year's book income or loss.

Form 990, Part X:

  • Make sure all the numbers have been entered correctly, with no transpositions.
  • Review the signs for positive and negative amounts, and make sure they're entered correctly.
  • Make sure the source balance sheet (financial reports) are in balance.
  • Beginning balances are found on the previous year's tax return as ending balances in Schedule L, column (d), or if this is a new company, from the Financial Report Balance Sheets.
  • Retained earnings should include current year's book income or loss.

If you transferred the client forward, the Beginning Balance will transfer forward if Schedule L was calculated in the prior-year return. Make sure the box to suspend calculation of Schedules L, M1, and M2 isn't checked using the steps below for the applicable return type.

  1. Open Form 1065 p1-3.
  2. Scroll down to page 3, Schedule B - Other Information.
  3. Locate line 4, Does the partnership satisfy all four of the following conditions? and check the applicable box.
    • If the Yes box is checked, the Schedule L won't calculate.
    • You can force calculation of Schedule L, M1, and M2 by checking the box in the Completion of Schedules L, M-1, M2, etc Smart Worksheet, just below line 4.
  1. Open Form 1120S p1-2.
  2. Scroll down to page 2, Schedule B - Other Information.
  3. Locate line 11, Does the corporation satisfy both of the following conditions? and check the applicable box.
    • If the Yes box is checked, check to see if the box labeled Check this box to suspend the Schedule L and M-1 calculations is checked. Uncheck this box, if desired.
  1. Open Form 1120 p3-6.
  2. Scroll down to page 4, Schedule K - Other Information.
  3. Locate line 13, Are the corporations total receipts (page 1, line 1a, plus lines 4 through 10) for the tax year and its total assets at the end of the tax year less than $250,000? and check the applicable box.
    • If the Yes box is checked, check to see if the box labeled Check this box to suspend the Schedule L, and M-1 and M-2 calculations is checked. Uncheck this box, if desired.
  • Line 3, inventory - from Form 1125-A.
  • Lines 6, 9, 14, 18, 21, 24, and 26 - from their respective supporting statements.
  • Line 25, unappropriated retained earnings - from Schedule M-2, line 8.

Refer to Tax Help and government instructions for further information on completing Schedules L, M-1, and M-2.

After completing Schedule M-2, Analysis of Unappropriated Retained Earnings per Books, the Schedule L balance sheet is out of balance.

Schedule M-2 details the beginning and ending balance of unappropriated retained earnings, which are retained earnings that have been saved for future years but aren't assigned specific use.

The balance sheet is out of balance because Schedule M-2, line 8 is carried to Schedule L, line 25, column (d). You need to review the total on Schedule M-2, line 8. If it's incorrect, review the lines leading up to it.

If the balance sheet is still out of balance, make sure Schedule M-1 has been completed correctly.

Line descriptions for Schedule M-2:

  1. Line 1: Enter the value of beginning retained earnings.
    • This value must equal the unappropriated retained earnings beginning balance on Schedule L, column (b), line 25.
  2. Line 2: Enter the net income or loss per books.
    • This value must equal the Net Income or Loss per Books on Schedule M-1, line 1.
  3. Line 3: Itemize other increases to unappropriated retained earnings.
  4. Line 4: Total of lines 1, 2 , and 3.
  5. Line 5: Distributions.
  6. Line 5a: Enter any cash dividends paid on common or preferred stock during the tax year.
  7. Line 5b: Enter any stock distributed to stockholders during the tax year.
  8. Line 5c: Enter any distribution of corporate property made during the tax year.
  9. Line 6: Itemize other decreases including prior year adjustments that reduced retained earnings.
  10. Line 7: Total distributions and other decreases.
  11. Line 8: Balance at end of year (total increases less total decreases) must equal the unappropriated retained earnings on Schedule L, column (d), line 25.
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