You're on Schedule L of an 1120S in Lacerte, the ending retained earnings figure is wrong, and the field won't take a correction cleanly. There's a small O sitting next to it.
The O means override, and it's Lacerte telling you that this number is a result, not an input. Typing over it doesn't fix anything. It just hides whatever is actually wrong one line further down.
What builds the number
Ending retained earnings is assembled from things you entered elsewhere:
Beginning retained earnings, plus net income for the year, less distributions to shareholders, plus or minus anything else that moved equity during the year.
So when the ending figure is off, one of those four is off. That's the whole diagnostic. Work backward through them instead of typing over the total.
Beginning retained earnings
On a return that proforma'd from last year, the beginning column carries forward automatically, which is the single best argument for completing Schedule L every year even when the S corp is under the filing thresholds and the balance sheet isn't strictly required.
Skip it one year and the following year has no beginning balances to carry. Skip it three years and someone eventually has to reconstruct the equity section from records the client may no longer have.
On a genuine first year, beginning balances are zero, which is the one easy thing about a first-year return.
If the beginning figure carried forward but disagrees with the prior year financial statements, don't paper over it. Either last year's return was wrong or the books were restated, and both of those are worth a conversation with the client before you file.
Net income
This is the one that's usually to blame, and it's rarely a balance sheet problem at all. If the income statement is wrong, retained earnings is wrong, and the balance sheet is where you happen to notice.
Common culprits on an S corp: officer compensation that never made it in because it belongs on the Officer Information screen rather than the Deductions screen, depreciation that was skipped because it belongs on the depreciation screen, or an account from the trial balance that got imported to the wrong line.
Fix the income statement and the equity section follows.
Distributions
Distributions come off retained earnings, and they're not entered on the balance sheet. They go with the shareholder information, on the same screens where you enter each shareholder's basis, beginning capital and any loans to or from the corporation.
This trips people up because distributions feel like a balance sheet item. They show up in the equity section, so people go looking for them there. They're shareholder-level information, tracked per shareholder, and they need to be, since they affect basis and each shareholder's K-1.
Two things worth checking while you're in there. First, that distributions were actually recorded as distributions in the client's books and not coded to an expense account, which happens constantly with owner draws. Second, that loans to and from shareholders are in the loan accounts and not mixed into distributions, because those are very different things for basis.
The two items that flow in from elsewhere
While you're on Schedule L, two lines are not yours to type.
Inventory flows from the cost of goods sold screen. Enter beginning inventory, purchases and ending inventory there, and the balance sheet picks it up. Type it directly on Schedule L and you've created a second source for the same number, and eventually the two disagree.
Retained earnings, as covered above.
Everything else on the balance sheet you enter, beginning and ending.
When it still won't balance
Assuming the numbers above are right and Schedule L still doesn't tie, the usual causes are boring ones. Accumulated depreciation left out of one column. A liability the client's balance sheet shows net that the return wants gross. Loans to shareholders sitting on the wrong side. A prior-year balance that was never right and got carried forward faithfully ever since.
Lacerte's diagnostics will tell you that it's out of balance and by how much. The difference itself is often the clue. Half the difference points at something posted in the wrong direction. A difference matching an account balance exactly points at something omitted.
What the diagnostics won't tell you is whether the numbers are right. Schedule L can tie perfectly with distributions coded to advertising expense and officer compensation buried in salaries, and the return will calculate, pass every critical diagnostic, and e-file.
Getting equity right before the return
This is the case for doing the reconciliation on the trial balance side rather than inside the tax software.
In Ledger IQ the trial balance is mapped to actual return lines, so distributions land on the distribution line and not somewhere adjacent to it. Adjusting entries post with references and appear in the adjustments column, so the equity section on the return is traceable back to what produced it rather than being a figure you arrived at.
The Working Trial Balance proves every column foots, and the income proof walks net income per books through book to tax differences to ordinary business income. Since ordinary business income is the number driving retained earnings and AAA, proving it before you open Lacerte means the equity section is right the first time.
Schedule L beginning balances can be entered as an optional check. Enter them and the workpaper compares them against what the prior year should have produced, which catches a carried-forward balance that stopped being right several years ago.
Getting the equity section right before Lacerte sees it
- Upload the trial balance and map the balance sheet accounts to their Schedule L lines.
- Check where the owner draws landed. If they were coded to an expense account, reclass them with an adjusting entry so distributions are distributions and shareholder loans stay separate.
- Enter the Schedule L beginning balances as the optional check. The workpaper tests them against what the prior year should have produced, which is how a balance that has been carried forward wrongly for years finally surfaces.
- Post the missing adjusting entries, since most retained earnings problems are income statement problems showing up on the balance sheet.
- Read the income proof. Ordinary business income is the number driving retained earnings and AAA, so proving it here means the equity section is right rather than forced.
- Use the Return Tie-Out to compare each mapped line against the return as filed once it is entered.
- Export to Lacerte and let the computed retained earnings figure arrive at the number you already proved.
Supports Forms 1065, 1120S and 1120, with exports for Drake, Lacerte and UltraTax CS. The walkthrough is in the Lacerte resource guide, and it is free during early access, so you can start at portal.ledgeriq.ai and run this on a live client without a credit card.