An S corporation is an entity that can be taxed as a normal corporation but is permitted by the IRS to be taxed like a partnership. This means the S-Corp’s income and losses are divided among its shareholders and each pays tax on their share of the business’s financial activity. As part of its tax filing, an S-Corp is required to provide a copy of its balance sheet. A balance sheet is a report that details the value of a business’s assets, how much the business owes and the value of the shareholder’s ownership in the S-Corp, as of a certain date.
Determine the date of the balance sheet. The S-Corp’s assets, liabilities and shareholder equity must be listed at its value as of the date of the balance sheet. For an S-Corp return, you will need to provide the business’s two balance sheets -- one that has a date as of the beginning of the tax year and the other with a date as of the end of the current tax year.
Record the S-Corp’s cash balance in the asset section of the balance sheet. Contact all of the S-Corp's banks and obtain statements listing how much money the S-Corp had as of each recording date.
Record how much money the S-Corp is owed from its customers as of the balance sheet date as “accounts receivable” in the asset section of the balance sheet. As a separate item, record an “allowance for bad debts.” This should equal what the S-Corp expects to not recover on its debts from customers based on the S-Corp’s past experience. This allowance is a negative balance that offsets accounts receivables.
Record the value of the S-Corp’s inventory as of the balance sheet date. Inventory should include all finished goods that will be sold as part of the S-Corp’s business, as well as all unfinished products and raw materials. The IRS permits you to value inventory three ways. The first method is specific identification, which involves valuing the exact cost of manufacture for each item of inventory. The cost of the actual items in inventory are used to determine the total value. The second method is FIFO (First In, First Out), which is an assumption that the first product sold is the first one manufactured, so inventory is valued based on the later costs of making the goods. The third method is LIFO (Last In, Last Out), which is an assumption that the first product sold is the last one manufactured, so inventory is based on the earlier costs of making the goods.
List the value of all buildings and all depreciable assets. A depreciable asset is anything that can wear out over time, such as a building or car. Also include a separate negative asset account to reflect the amount of accumulated depreciation, or how much the asset has declined in value over time.
List the value, in separate items, the value of any U.S. government securities, tax-exempt securities, shareholder securities, loans, other investments, and other assets the S-Corp owns. Record these assets as the amount of money it took for the S-Corp to acquire these assets.
Add the value of all of the assets together to arrive at the “total asset” amount. Be sure to deduct any negative account balances, such as depreciation.
List all liabilities the S-Corp owes. The liabilities should be listed at the amount the S-Corp owes as defined by the contract that caused the S-Corp to incur the liability. The liabilities an S-Corp will need to report on its return are Accounts Payable; Mortgages, notes, bonds payable in less than one year; other current liabilities (items the S-Corp must pay within a year); and loans from shareholders.
Record the value of the S-Corp’s capital stock, additional paid-in-capital and retained earnings. Capital stock is equal to the number of shares issued multiplied by the par value, which should be noted in the corporation’s articles of incorporation. Paid-in-capital is how much the business raised from the initial sale of its stock minus the value of capital stock.
Add the total value of the liabilities and equity together. This amount should equal the total assets.
References & Resources
- Internal Revenue Service: S Corporations
- New York University: A Primer on Financial Statements
- Free Dictionary: Capital Stock
- Free Dictionary: Additional Paid-In-Capital
- Accounting Tools: Inventory Valuation
- College of William & Mary Law School Scholarship Repository: S Corporations
- Internal Revenue Service: Form 1120S – U.S. Income Tax Return for an S Corporation