1065 Pg 5 Balance Sheet Question

[Crank]

1065 holds one rental RE property (the only asset).  2015 Depreciation $3000, Net Income $1500.

Compared to 2014, Total Assets decreased by $3000 (the Depreciation) and Partners Capital Increased by $1500 (the net income).  So the year end balance sheet is out of balance by $4500.  What other balance sheet items are affected to have it balance?  Would I increase cash by $4500?

This is my first 1065 but I do know how a balance sheet works and Im having an issue trying to figure this one out.  Sorry if this sounds stupid but I'm drawing a blank.

Any help is appreciated

 

[Bart]

When you credited the 4500 in rent income what did you debit?

[Crank]

I didn't do the books so that's my question.  I'm assuming that the debit would be to cash to balance the books.  I need to confirm with the client what cash balance the partnership had at the end of 2015.  Assuming the cash account has something less than than the $4500 required to balance the books (it was $0 at the end of 2014) then the difference, I presume, would be considered a distribution and therefore a reduction in partner's equity instead of the debit to cash.

 

On a side note, Block did this return last year and drove me nuts for the better part of an hour because their 2014 ending equity on the balance sheet didn't equal the combined partners equity on their K-1's.  I just input Block's last year amounts and then couldn't understand why my K-1's combined basis didn't equal my balance sheet ending equity.  Spent way too much time on what is really a simple return because of this.

[Terry D EA]

It seems to me the missing piece of the puzzle here is the liabilities. You did not list any which doesn't satisfy the account equation. You are correct the partner's capital account increases by the net income. But again, where are the liabilities? If there are no liabilities you could balance by debiting the cash account. However, did you get an ending cash figure? I always provide the balance sheet with all 1065 forms. However, in this case if it is not required by the IRS because the receipts were under 250K, then I would lean toward not including it if I had any doubt as to the accuracy or if there were any missing information.

[Crank]

Correct, there are no Liabilities.

Hmmm, the balance sheet is page 5 (Schedule L) of form 1065.  How would I not include it?  Would I select "Yes" on 1065 page 2, line 6 to not include the balance sheet (Sch L) and the other schedules mentioned?  Or is there some other option I'm not seeing to not include it?

[SFA]

Just because you don't need to reveal the balance sheet doesn't mean you don't need to bother with it. Raise your skills and push through. If you throw your hat in the ring for the work, then step up to the plate and know how to do it. Ask the Clients  for the bank balances, the liabilities, for their Guaranteed payments, info on any partner loans to and from the partnership, etc. Get it right. Use the easy returns to build your confidence and your reputation.

Or you can turn the work away. Remember, we don't need to be all things to all people. It's ok.

[Crank]

I have all those items except for the cash balance, which I am waiting on.  My entire point was to get it right from the balance sheet item (cash vs distribution of equity) to the combined partners equity vs the total balance sheet equity.  I dont cut corners but after I get it correct what is the point of filing the balance sheet if its not required?  It will still be complete and everything tie out in the return.

[Abby Normal]

You may be missing distributions.

The point of doing the balance sheet is to ensure you haven't missed anything. I have clients like this who don't use accounting software. I make them give me a proof of cash for the year, with each month in a separate column. And I prefer to have all the bank statements too.

[Roberts]

20 hours ago, Crank said:

Correct, there are no Liabilities.

Hmmm, the balance sheet is page 5 (Schedule L) of form 1065.  How would I not include it?  Would I select "Yes" on 1065 page 2, line 6 to not include the balance sheet (Sch L) and the other schedules mentioned?  Or is there some other option I'm not seeing to not include it?

If line 6 on schedule B is YES - whatever you produce will not be submitted to the IRS via e-file and is for your client's informational purposes only. In my opinion, don't do it unless the client wants it done and knows they are paying to have it done. It's good to know how to do these things but if it's not required - don't do it wrong. The IRS has that #6 question because they simply don't want the information if it's not worth their time to process it.

Why charge the clients for work that doesn't need to be done? Do you charge them to produce a bunch of other worksheets that aren't required?

[Crank]

5 minutes ago, Roberts said:

Why charge the clients for work that doesn't need to be done? Do you charge them to produce a bunch of other worksheets that aren't required?

Very good point.  I like to complete the balance sheet to make sure I havent missed anything.  Billing isnt the reason and I adjust accordingly.

[Roberts]

Sorry, wasn't accusing. Honestly, doing the Schedule L doesn't mean you didn't miss something. Unless they are running EVERYTHING through a Quickbooks type program and keeping funds 100% separate (which is rare for 1 property x 1 owner), you are fighting an uphill battle.

 

[Lion EA]

If they took in rent, then cash increased.  Do you have the 31 December bank balances?

Compare the BS items from 2015 to those on their 2014 return to get an idea of what to look for.  Loans to/from partners, that kind of thing.

Were there distributions to the partners?

You'll need Schedule L when they sell.

[Crank]

1 hour ago, Roberts said:

Sorry, wasn't accusing.

No reason to be sorry.  I appreciate the input!

1 hour ago, Lion EA said:

If they took in rent, then cash increased.  Do you have the 31 December bank balances?

Compare the BS items from 2015 to those on their 2014 return to get an idea of what to look for.  Loans to/from partners, that kind of thing.

Were there distributions to the partners?

You'll need Schedule L when they sell.

Still waiting for the cash balance at YE 2015.  Not much to compare from 2014-2015.  One asset and it's accumulated depreciation, that's it, period.   The cash balance at year end should provide the necessary information to determine if there was a distribution or not.

[Terry D EA]

2 hours ago, Roberts said:

If line 6 on schedule B is YES - whatever you produce will not be submitted to the IRS via e-file and is for your client's informational purposes only. In my opinion, don't do it unless the client wants it done and knows they are paying to have it done. It's good to know how to do these things but if it's not required - don't do it wrong. The IRS has that #6 question because they simply don't want the information if it's not worth their time to process it.

Why charge the clients for work that doesn't need to be done? Do you charge them to produce a bunch of other worksheets that aren't required?

This was alI I was saying to begin with. I agree do the balance sheet but don't submit it wrong. Yes, the client should have an accurate balance sheet for his/her records but....just saying.

[SFA]

Crank, I had to think of you a few days ago when I struggled getting the balance sheet to work on a VERY simple rental LLC. It was a new client for me so I did not have any history except the prior year tax return's balance sheet. I had to keep emailing questions to client until finally all the pieces came together. I felt like I was being punished for being so hard on you in this topic. What goes around . . . comes around! Quickly!