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This article will help you reconcile the Schedule L and M-2 Equity Accounts when the Schedule M-2 is reported on a tax basis.

The Retained earnings - Unappropriated/Timing Differences (REU) fields in Screen Ms are used to reconcile the Schedule M-2 balances to the total retained earnings on Schedule L. If you reconcile your Schedule M-2 on a book basis, you will probably not use the REU account. If you reconcile your Schedule M-2 on a tax basis, the REU account is helpful in tracking book / tax timing differences.

The sums of the end of year Schedule M-2 and REU accounts transfer to the Schedule L end of year Retained Earnings. If you do not use the REU account, you will need to force the end-of-year retained earnings field in Screen L-2.

Use the following procedure to begin tracking the book / tax differences between the Schedule M-2 and the Schedule L retained earnings accounts.

1. Enter the sum of the prior year differences between the Schedule M-2 accounts and the Retained Earnings account in the Balance at beginning of year (REU) field in Screen Ms.
2. Enter code R in the Carry book/tax difference to Schedule M-2 field in Screen Ms to transfer the current-year book / tax differences related to depreciation, amortization or gain on sale of assets to the REU account.
3. Enter code R in the Sch M-2 column in the applicable statements in Screen Ms to transfer any other book / tax differences to the REU account.
4. Enter the detail of the prior year differences between the Schedule M-2 and Schedule L retained earnings accounts in the Reconciling detail statement. UltraTax/1120 prints this detail and the current-year book / tax differences coded to the REU account in the Schedule M-2 and Schedule L Ending Retained Earnings Reconciliation statement.
5. UltraTax/1120 proformas the data entered in the Reconciling detail statement and the current-year book / tax differences coded to the REU account to the following year.