Where to Enter Partner Capital in Drake Tax
Partner capital is entered in section L, Analysis of Capital Account, of each partner K1 screen, including the beginning capital account and contributions during the year. Those entries flow to Schedule M-2, so Schedule M-2 line 1 is not typed on the M-2 itself. If the beginning balances disagree, Drake generates Return Note 044.
- Open each partner K1 screen
- Complete section L
- Let M-2 compute
- Check Note 044
- Use the worksheets
- Turn autobalance off first
- Data entry
- K1 screen for each partner
- Section L, Analysis of Capital Account
| Trial balance account | Drake Tax screen and field | Lands on |
|---|---|---|
| Partner beginning capital | K1 screen, section L, beginning capital account | Schedule M-2 line 1 and K-1 item L |
| Capital contributed | K1 screen, section L | K-1 item L and Schedule M-2 |
| Partner draws | K1 screen, section L, withdrawals and distributions | Schedule K line 19a and K-1 item L |
| Partners capital on the balance sheet | Screen L line 21, locked while autobalance is on | Schedule L line 21 |
| Special allocations | K1 or SA screen, with Other adjustments in section L to reconcile | K-1 item L |
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Try it freeWhere to Enter Partner Capital in Drake Tax on a trial balance
| Acct # | Account | Debit | Credit |
|---|---|---|---|
| 1000 | Cash | 42,800.00 | |
| 1200 | Accounts receivable | 68,500.00 | |
| 1300 | Inventory | 55,000.00 | |
| 1500 | Equipment | 145,000.00 | |
| 1510 | Accumulated depreciation | 47,500.00 | |
| 2000 | Accounts payable | 28,400.00 | |
| 2100 | Accrued expenses | 9,200.00 | |
| 2400 | Notes payable | 92,000.00 | |
| 2450 | Due to shareholder (the account this page is about) | 15,000.00 | |
| 3000 | Common stock | 10,000.00 | |
| 3900 | Retained earnings | 86,300.00 | |
| 3950 | Shareholder distributions | 52,000.00 | |
| 4000 | Gross receipts | 612,000.00 | |
| 5000 | Cost of goods sold | 318,000.00 | |
| 6000 | Salaries and wages | 88,000.00 | |
| 6050 | Officer compensation | 72,000.00 | |
| 6300 | Depreciation expense | 21,500.00 | |
| 6900 | Other operating expenses | 37,600.00 | |
| Total | 900,400.00 | 900,400.00 |
Example journal entries
| Account | Debit | Credit |
|---|---|---|
| Income summary | 74,900.00 | |
| Partner A capital | 37,450.00 | |
| Partner B capital | 37,450.00 |
| Account | Debit | Credit |
|---|---|---|
| Partner A capital | 26,000.00 | |
| Partner A draws | 26,000.00 |
The answer to "I cannot enter beginning capital on M-2"
You are not supposed to. Schedule M-2 line 1 is built from the partner level entries: beginning capital goes in section L of each partner's K1 screen, and Drake totals those to produce the M-2.
So when the beginning figure is wrong, the fix is on a K1 screen, not on the M-2.
Note 044 and what it means
Note 044 says the beginning of year amounts do not balance between Schedule L line 21 and Schedule M-2 line 1. In other words, the balance sheet and the sum of the partners' capital accounts disagree about where the year started.
Where to look, in order:
- Section L of each partner's K1 screen, for a beginning capital figure that was never entered or was entered for only some partners
- An entry on screen L for line 21, which can override what the partner screens produce
- An autobalance adjustment, which moves line 21 without touching the partner detail
WK_PCAR and WK_M2 in View/Print mode show Drake's arithmetic for both, which is usually faster than re-reading the inputs.
Autobalance makes this worse
Autobalance adjusts partners' capital on a 1065. That both hides the disagreement and locks line 21 against direct entry, so the first move on any capital account problem is to turn it off.
Tax basis capital, and why the figures move
Item L asks for capital accounts on a tax basis. A partnership whose books are kept on a GAAP or section 704(b) basis needs a separate tax basis computation per partner, and the differences come from the familiar places: depreciation computed differently for book and tax, nondeductible expenses, and syndication costs.
A negative tax basis capital account is possible rather than automatically wrong, because debt allocated to a partner supports deductions beyond contributed capital. It does need looking at, with item K, the liability allocation, as the supporting evidence.
Special allocations
If an override was entered on a K1 screen, older Drake versions did not recalculate section L from the overridden totals, and an entry in the Other adjustments field of section L was needed to reconcile ending capital. Worth knowing when a prior year file with special allocations does not foot.
Tax return treatment
| Form | Line |
|---|---|
| Form 1065 | Schedule L line 21, Schedule M-2, and item L of each Schedule K-1 |
Common questions
Why can I not enter beginning capital on Schedule M-2 in Drake?
Because M-2 line 1 is calculated from the partner level entries. Beginning capital goes in section L, Analysis of Capital Account, on each partner K1 screen, and Drake totals those to build the M-2.
What does Return Note 044 mean?
That the beginning of year amounts do not agree between Schedule L line 21 and Schedule M-2 line 1. Check section L of each partner K1 screen, any entry made directly on screen L for line 21, and whether autobalance adjusted the line.
Which worksheets show how Drake built the capital accounts?
WK_PCAR and WK_M2 in View/Print mode. They show the arithmetic behind the partner capital roll forward and Schedule M-2, which is usually quicker than re-reading every input.
Can a partner capital account be negative?
Yes. Debt allocated to a partner supports deductions beyond their contributed capital, so a negative tax basis capital account is possible rather than automatically an error. It needs support from the liability allocation reported in item K, and it matters on a sale or liquidation.
Related answers
Go deeper
This page is the short answer. These articles work through the same ground in detail.
Last reviewed October 17, 2026.