1065 sch L: reconciling $; cap acct adjustments?

[ivana89]

filing 1065 sch L for small family-run rental real estate p-ship. only assets=cash, buildings / assets (less accumulated depr) & land. only liabilities + capital=non-recourse loans & partners cap acct. actual cash-on-hand is small, since all income (per cash flow & income statements) is distributed quarterly. to make the sheet balance, cash-per-sch L is solved for, since all other #s are known.

problem(s):
1. cash per sch L doesn't match cash-on-hand. i think this problem results from accumulated depreciation (?).
2. each year, accumulated depr increases faster than assets are added, while non-recourse loans and cap accts stay constant / decrease slightly. to maintain a=l+c, cash-per-sch L must increase & the difference between the two gets even larger. there is no growing pile of cash, and i'm not an embezzler.

question(s): 1. how do i reconcile the cash #s? 2. if i decrease the capital accts (by distribution) to correct the cash # to reflect actual cash on hand, will the partners be subjected to extra taxes?

TIA for your time & assistance.

[BHoffman]

filing 1065 sch L for small family-run rental real estate p-ship. only assets=cash, buildings / assets (less accumulated depr) & land. only liabilities + capital=non-recourse loans & partners cap acct. actual cash-on-hand is small, since all income (per cash flow & income statements) is distributed quarterly. to make the sheet balance, cash-per-sch L is solved for, since all other #s are known.

problem(s):
1. cash per sch L doesn't match cash-on-hand. i think this problem results from accumulated depreciation (?).
2. each year, accumulated depr increases faster than assets are added, while non-recourse loans and cap accts stay constant / decrease slightly. to maintain a=l+c, cash-per-sch L must increase & the difference between the two gets even larger. there is no growing pile of cash, and i'm not an embezzler.

question(s): 1. how do i reconcile the cash #s? 2. if i decrease the capital accts (by distribution) to correct the cash # to reflect actual cash on hand, will the partners be subjected to extra taxes?

TIA for your time & assistance.

Hi Ivana - without seeing what you are looking at, it's hard to answer but here's a shot:

The balance sheet on Sch L should be entered exactly as it appears on the "book" financial statements. The cash balance should be what it actually was on the closing date. You probably have to override your software to enter the "book" depreciation on Sch L. Your tax and book fixed asset values should match.

Differences between depreciation on the books and depreciation on the tax return would be accounted for as an M-1 adjustment.

[ivana89]

BHoffman, thank you very much for your reply.

as you said, book values were entered in the balance sheet in sch L: bldgs, assets, accumulated depreciation, partners' cap accts, etc. (i believe that tax & book values for fixed assets & depreciation match.) the problem is that the 'book value' for cash is ~0, (see comments re distributing all income), but the value for cash to make the balance sheet 'balance' isn't zero. in fact, it's much bigger than zero, and getting bigger every year due to increasing accumulated depreciation.

to correct the balance sheet's cash value to the actual cash on hand, the only way that i could think of to do so (and keep the balance sheet 'balanced') is to decrease the capital accounts by the same amount. but then it would look like the partners had a large distribution (which wouldn't be the case), and hence my concerns about their potentially getting taxed on those distributions.

as you can (obviously) see, i'm not a CPA or an accountant, so i very much appreciate your help.

[BHoffman]

Ivana - income increases the partners' capital accounts and increases cash.

Distributions decrease cash and decrease the partners' capital accounts.

Partnership accounting and tax is hard. You might want to get someone experienced to help you in person. A forum is not a good place to get this kind of advice.

You are correct in assuming that errors on your part may very well trigger problems for your clients. Partnerships can be very tricky.