Where Does Equity Go on Schedule L?
A C corporation reports capital stock on lines 22a and 22b, paid-in capital on 23, appropriated retained earnings on 24, unappropriated retained earnings on 25, equity adjustments on 26 and treasury stock on 27. An S corporation uses lines 22 through 26, with treasury stock on 26. A partnership reports a single figure: partners capital accounts on line 21.
| Trial balance account | Where it goes on the return | Watch for |
|---|---|---|
| Preferred stock | 1120 line 22a | C corporation only |
| Common stock | 1120 line 22b, 1120-S line 22 capital stock | Par or stated value |
| Additional paid-in capital | Line 23 on both corporate returns | Amounts above par |
| Retained earnings, appropriated | 1120 line 24, with a statement | Rare in small business |
| Retained earnings | 1120 line 25 unappropriated, 1120-S line 24 | Derived, not typed |
| Adjustments to equity | 1120 line 26, 1120-S line 25 | With a statement |
| Treasury stock | 1120 line 27, 1120-S line 26 | Deducted from equity |
| Partners capital accounts | 1065 line 21 | Equals the total of item L |
| Distributions and draws | Closed into equity. Schedule K line 16d or 19a | Never an expense |
One account at a time works until there are 200 of them.
Try it freeWhere Does Equity Go on Schedule L? 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 | 15,000.00 | |
| 3000 | Common stock | 10,000.00 | |
| 3900 | Retained earnings (the account this page is about) | 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 |
|---|---|---|
| Retained earnings | 52,000.00 | |
| Shareholder distributions | 52,000.00 |
Three different equity sections
Form 1120 is the most detailed: preferred stock on 22a, common stock on 22b, additional paid-in capital on 23, appropriated retained earnings on 24, unappropriated retained earnings on 25, adjustments to shareholders' equity on 26, and less cost of treasury stock on 27.
Form 1120-S compresses that: capital stock on 22, additional paid-in capital on 23, retained earnings on 24, adjustments on 25, and less cost of treasury stock on 26.
That single line difference matters. Treasury stock is line 27 on an 1120 and line 26 on an 1120-S, and getting it wrong on an S corporation puts the figure where total liabilities and shareholders' equity belongs.
Form 1065 reports one line: partners' capital accounts on line 21. The detail lives in Schedule M-2 and item L of each K-1 instead.
Retained earnings is derived, never typed
Beginning retained earnings plus net income, less distributions, plus or minus prior period adjustments.
That is the Schedule M-2 computation, and it is the control that catches most balance sheet problems. When Schedule L does not tie, compute what ending equity should be from that formula and compare: a difference equal to the distributions means they were never closed, and one equal to net income means the year was never closed.
Typing the figure forces agreement and destroys the signal.
What client books usually look like
One account called owner equity, holding capital contributions, distributions and prior year profits together.
Schedule L needs those as separate lines, which means unpicking the account once, from the formation documents and the deposit history. Done once, every later year carries forward correctly. Left alone, the same unexplained figure gets retyped annually and the balance sheet ties only because someone plugged it.
Appropriated retained earnings
Line 24 on an 1120 exists for retained earnings formally restricted by a board resolution or a loan covenant, with a statement describing the restriction.
Small businesses almost never have this. A figure sitting there is usually something else, often a plug or a misread of the two retained earnings lines.
Tax return treatment
| Form | Line |
|---|---|
| Form 1120 | Schedule L lines 22a through 27, with M-2 analyzing line 25 |
| Form 1120S | Schedule L lines 22 through 26, with Schedule M-2 tracking AAA |
| Form 1065 | Schedule L line 21, with Schedule M-2 and item L of each K-1 |
Common questions
What line is retained earnings on Schedule L?
Line 25, unappropriated retained earnings, on Form 1120, with line 24 reserved for appropriated retained earnings. On Form 1120-S it is line 24. A partnership reports partners capital accounts on line 21 instead.
What line is treasury stock?
Line 27 on Form 1120 and line 26 on Form 1120-S. The S corporation equity section is one line shorter, which makes this an easy figure to misplace.
Should ending retained earnings be entered or calculated?
Calculated: beginning retained earnings plus net income less distributions, plus or minus prior period adjustments. That is the Schedule M-2 roll forward, and it is the check that most often reveals why a balance sheet does not tie.
How does a partnership report equity on Schedule L?
As a single figure on line 21, partners capital accounts, which must equal the total of item L across every partner K-1. The detail is in Schedule M-2 and on the K-1s rather than on the balance sheet.
Related answers
Go deeper
This page is the short answer. These articles work through the same ground in detail.
Last reviewed October 18, 2026.