TurboTax Business Balance Sheet Help Center

A balance sheet is a summary of the things a business owns and the debts it owes. Here we provide general information, suggestions, and help for completing your balance sheet in TurboTax Business. Read through the article or follow one of these links to a section of interest:

• Balance sheet overview
• What businesses must complete a balance sheet?
• TurboTax Business and balance sheets
• Review and correct ending balances in TurboTax Business
• Book-to-taxes differences
• Reconcile a balance sheet
• Troubleshoot balance sheet issues

Expressed in mathematical terms, a balance sheet is: Assets = Liabilities + Equity. 

Here are simple definitions for the terms:

Assets: Resources of a business used for the production of income. Some examples of common assets are cash, equipment, merchandise to be sold, buildings, and land. Accounts receivable (the amount customers owe you for products or services) are also considered assets. Assets also include intangibles such as goodwill, copyrights, and patents.

Liabilities: Liabilities are best described as a business's obligations. Examples are salaries and wages owed to employees, taxes payable, notes payable, and mortgages payable. Accounts payable (amounts owed to other individuals or businesses for goods and services they provided to you on credit) are also liabilities.

Equity: Equity is the net value the owner(s) of the business have in the assets of the company. Equity is often referred to as a right, claim, or interest in property.

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If your business's income is less than $250,000, and your total assets are less than $250,000 for an S Corporation or $600,000 for a Partnership/LLC, you are not required to complete the Balance Sheet per Books, Reconciliation of Income (Loss) per Books With Income (Loss) per Return, or the Retained Earnings Analysis for your federal  business return.

A balance sheet is required if you're filing a state business return for one of these states:

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The TurboTax Business Interview walks you through completing your balance sheet. Information you enter is transferred to the appropriate tax form or worksheet:

Schedule L: Balance sheets per Books

• TurboTax Business provides a complete Interview allowing entry of all assets, liability and equity accounts, and supplemental worksheets for Other Assets and Other Liabilities. Together these make up Schedule L.

Schedule M-1: Reconciliation of Income (Loss) per Books With Income (Loss) per Return

• If you're preparing Form 1065 or Form 1120S, TurboTax Business provides a Schedule M-1 Items Worksheet.
• If you're preparing Form 1120, TurboTax Business provides a Book/Return Income (Loss) Reconciliation Worksheet.

Schedule M-2: Analysis of Partners' Capital Accounts

• If you're preparing Form 1065, TurboTax Business provides a Schedule M-2 Analysis of Partners' Capital Accounts section on Form 1065, p 3-4.
• If you're preparing Form 1120, TurboTax Business provides a Schedule M-2 Analysis of Unappropriated Retained Earnings per Books section on Form 1120, p 3-4.
• If you're preparing Form 1120S, TurboTax Business provides a Schedule M-2 Retained Earnings Worksheet.

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TurboTax Business will display the message that your ending balances are not reconciled if the income or earnings reported on your tax return differs from what is on your books.

Complete these steps to reconcile the balances:

1. Select the Federal Taxes tab at the top of the TurboTax Business screen, and then select the Balance Sheet button. 
2. Proceed through the Interview, manually entering income and expenses per your books.

After completing these steps, if you continue to receive the message that ending balances do not match, click the Balance Sheet button again. Select Review, and TurboTax Business will help you resolve remaining discrepancies. See reconcile a balance sheet or troubleshoot balance sheet issues for additional help.

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A balance sheet is considered "in balance" when Assets = Liabilities + Equity.  But it's not that simple. Most companies use financial accounting principles to record their accounting transactions on their books. On the other hand, tax accounting principles are used to prepare tax returns. As a result, there's often a difference between the assets and liabilities on your books and the information your report on your tax return. These are called book-to-tax differences and they must be resolved before your balance sheet will, in fact, be "in balance."

Common causes of book-to-tax differences

Income Items:

• Tax exempt interest: Interest recorded on the books but not taxable.
• Life insurance proceeds: Generally not taxable if the corporation is the beneficiary.
• Gain (Loss) on disposition of Section 179 Assets: Per IRS regulation, all Section 179 activity is passed to partners or shareholders.
• Unearned rent income: Depending on your accounting method, rent received in advance might be reported as income when received for tax purposes, but not recorded on your books until it's actually due.
• Unearned income: Depending on your accounting method, payments might be recognized as income when received for tax purposes. For book purposes, income might not be recorded until the goods are delivered.
• Gain on sale of assets: Gain for book and tax purposes might differ because  depreciation differs between book and tax.

Expense Items:

• Disallowed meals and entertainment: Generally you can only deduct 50% of business meal and entertainment expense.
• Fines and penalties not deductible for tax purposes, but deducted on your books.
• Life Insurance Premiums: If your business has the right to receive proceeds from the policy, premium payments are not deductible.
• Section 179 depreciation claimed as a tax deduction might not be claimed as a book expense.
• Payroll taxes for employer Social Security tax on certain employee tips.
• Loss on sale of assets: Loss for book and tax purposes might differ because of depreciation differences between book and tax.
• Business costs that might be deducted for book purposes and amortized for tax purposes.
• Bad debt expense is charged off for tax purposes.

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There can be several reasons why a balance sheet does not balance. We'll highlight several of the most common reasons and give you suggestions for correcting the balance sheet on your business tax return.

Don't forget the main formula: Assets = Liabilities + Equity.

If you are working from a previously prepared balance sheet:

• Check that all amounts were entered correctly into TurboTax Business. Double check for transposition errors such as 45 entered for 54 or vice versa.
• Check your signs.  All amounts should be entered as positive unless your balance sheet balance has an uncharacteristic negative balance such as an overdraft in cash that would be entered as "-100" or an amount you overpaid on an account payable. If you paid an amount on an account payable that was more than the invoice, you might have a negative amount in your liabilities. Or, previous losses in your retained earnings larger than any profit would be entered as negative retained earnings.
• Make sure your original balance sheet is in balance. Check for common bookkeeping errors. If you have a prepared balance sheet from your records, the amounts entered in TurboTax Business should not be different than those on the prepared record. Book profit or loss for the period should be added to retained earnings.

If you are preparing a balance sheet from imported data:

• Confirm that all amounts imported correctly and that no information is duplicated or missing. If necessary, adjust balances.

Tip: You can view or adjust the source of a line entry in TurboTax Business by following these steps: Select Forms from the View menu at the top of the TurboTax screen. Highlight the appropriate document and select Open. Click on the line entry in the amount column, and then click the magnifying glass icon to view the source of the entry and adjust as necessary.

If you are creating a new balance sheet for your tax return:

• Beginning balances are found on your previous year's tax return as ending balances. Beginning with previous year's balances, add or subtract business activity to reflect current year's ending balances.
• Prepare a cash flow statement that accurately reflects increases and decreases to balance sheet accounts.
• Make sure all assets are listed at their basis (or book balance) amount. Beginning and ending inventory flow from the appropriate lines of the Cost of Goods Sold section of Schedule A.
• Appropriate records must be kept supporting accumulated depreciation (i.e. depreciation claimed in prior years) on depreciable assets. Previous years' accumulated depreciation plus current year's depreciation expense are added together to get the ending accumulated depreciation amount.
• Retained earnings amounts should include current year's book income or loss.

Note: Professional guidance may be necessary to recreate previous years' or current year's balance sheet information from incomplete or insufficient records.

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If you tried to reconcile but find your balance sheet is still out of balance, try one or all of the following:

Prepare a cash flow statement

Many small businesses do not use a double-entry form of bookkeeping, relying instead on entries in a check register or other records. Many times this prevents the accurate preparation of a balance sheet, as required for your tax return. Prepare a cash flow statement and reconcile it with your actual cash flow (checking account records, petty cash, etc.). Here's how:

Start with the actual total balance of checking accounts, savings accounts, petty cash, etc. and any un-deposited funds at the beginning of the year.

Add cash in

• Receipts for sales or service
• Cash contributed by shareholders/partners
• Collections on accounts receivable
• Receipts for sales of assets
• Interest and dividend income received
• Borrowed money
• Any other receipts, such as loans repaid, refunds, etc.

Subtract cash out

• All expenses (be sure to include any automatic bank charges)
• Any shareholder/partner expenses paid with business funds
• Distributions to shareholders/partners
• Payments on loans or accounts payable
• Asset purchases

The result should be the actual total balance of checking accounts, savings accounts, petty cash, etc. and any un-deposited funds at the end of the year.

Check all of your book entries

Check your calculations and look for common bookkeeping errors such as:

• Transposing numbers (entering 45 as 54)
• Entering the wrong number (entering 45 as 450)
• Entering the check number as the amount
• Changing the "sign" of an entry (entering a positive as a negative, or vice versa)
• Making incomplete or no journal entries to correct mistakes or non-cash transactions
• Not accurately reconciling bank statements

Confirm that you are not missing records

To prevent missing records:

• Establish and maintain an adequate record keeping system.
• Do not allow shareholders/partners to make personal payments from business accounts or business payments from personal accounts.

Check accuracy of account balances

Reconcile, or track, the activity in each account from the balance at the beginning of the year to the balance at the end of the year.

Check prior-year balance sheets for accuracy

If your books were previously out of balance, they will remain out of balance until you correct them. If you discover a prior-year discrepancy, you do not need to file an amended return unless the mistake causes income, expense, or credit amounts to change. Other adjustments should be reported on a statement and attached to your current-year return.

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