S Corp Balance Sheet: Everything You Need to Know
An S corp balance sheet includes a detailed list of your company's assets and liabilities. 3 min read
2. What Is an S-Corporation?
3. S-Corporation Accounting
4. Do I Have to Do a Balance Sheet for an S-Corp Return?
5. Simple Balance Sheet Preparation for an S-Corp
6. Accounting for Income and Expenses
What Is an S Corp Balance Sheet?
An S corp balance sheet includes a detailed list of your company's assets and liabilities. Creating and maintaining an S-corp balance sheet is critical to a corporation's success. These sheets are required by the IRS, in addition to profit and loss statements.
Your corporation's balance sheet will include all fixed and intangible assets. Examples include real estate and intellectual property respectively. Some other examples of assets include, but are not limited to, vehicles, accounts receivable, and inventory. Examples of liabilities would include debt payment, taxes, insurance costs, and wages.
To remain viable, an S-Corp balance sheet should show that its assets exceed its liabilities.
What Is an S-Corporation?
When comparing a C-corp and S-corp, the main difference is that S-corporations do not generally need to pay income tax. Instead, the corporation's profits are passed on to the company's shareholders. These individuals then file their share of the profits on their individual income tax return. This means that if an S-corporation reports a loss, their shareholders can also claim losses.
In comparison, C-corporations are subject to what's known as "double taxation" — requiring both the shareholders and entity to pay tax on the same profits. This is one of the greatest perks associated with S-corp election and one of the main reasons a corporation might choose to be recognized as an S-corporation rather than remaining a C-corporation.
Although all businesses need to maintain accurate accounting records, this is particularly important for S-corporations because of the way they are taxed. Meticulous records need to be kept regarding income, capital investments, and expenses. This is especially true regarding each shareholder's investments. These records help determine what percentage of ownership each shareholder has in the company.
Do I Have to Do a Balance Sheet for an S-Corp Return?
Throughout the tax year, you must maintain a detailed balance sheet. When it comes time to file your taxes, you can then refer to this sheet in order to remain organized. In some cases, you may need to transcribe all of the information found on your S-corp balance sheet onto your tax form. In other cases, you may not need to reference this sheet — but you will still need to keep this information on file.
Simple Balance Sheet Preparation for an S-Corp
To help guide you in terms of balance sheet preparation, please refer to the following 10 steps:
- Step one — Determine all related data as discussed above. To complete your S-corp balance sheet, you will need information regarding assets, liabilities, and shareholder equity.
- Step two — Input your S-corp's cash balance in the "asset" section. Please refer to your bank statements in order to list the amount of money your corporation has as of each date on record.
- Step three — Input how much is owed from customers in the "accounts receivable" section. This step will include a record of "allowance for bad debts." Any negative balance will offset accounts receivable.
- Step four — Input the value of any inventory. This will include all finished goods, as well as unfinished products and raw materials.
- Step five — List the value of all depreciable assets and all buildings.
- Step six — Record the amount of money it took for your corporation to acquire assets, including loans, investments, tax-exempt securities, etc.
- Step seven — Add the value of any other asset to obtain a "total asset" amount.
- Step eight — List all of your company's liabilities.
- Step nine — Record the value of your capital stock, retained earnings, and any additional paid-in-capital.
- Step ten — Add the total value of equity and liabilities together.
Accounting for Income and Expenses
The most common and biggest issue will be accounting for the capital accounts of each shareholder. For example, if one shareholder has contributed 33 percent of the company's capital, then 33 percent of the company's net profits will be allocated to that individual shareholder.
Capital accounts are involved in two key parts of an S-corp's tax and financial reporting:
- First, capital accounts are reported on an S-corp's balance sheet as loans and shareholder equity.
- Second, each capital amount should be summarized on Form 1120S Schedule K-1.
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