Updated October 18, 2026. Quick answer: Schedule L is the S corporation’s balance sheet at the beginning and end of the tax year, taken from its books and records. Assets are lines 1 to 15, liabilities and shareholders’ equity are lines 16 to 27, and the instructions comment on only a few lines. Total assets from line 15, column (d), also go on page 1, item F.
What Schedule L is
Schedule L sits on page 4 of the Form 1120-S return. The form heading reads “Balance Sheets per Books” with columns for the “Beginning of tax year” and “End of tax year”. Columns (a) and (b) are the beginning amounts and columns (c) and (d) the end amounts. The instructions say “The balance sheets should agree with the corporation’s books and records.”
When Schedule L is not required
The instructions say “Schedule L isn’t required to be completed if the corporation answered” Yes to question 11 on Schedule B. The questions are covered on the Schedule B questions 6 to 11 page. The instructions also point to the separate Schedule M-3 instructions: “See the separate Instructions for Schedule M-3 (Form 1120-S) for provisions that also affect Schedule L.”
Assets, lines 1 to 15
The form lists cash, receivables, inventories, investments, depreciable and depletable assets, intangibles and other assets, ending with “Total assets” on line 15. The instructions comment on one asset line, and two other instruction paragraphs touch the asset side.
| Line | Form caption | What the form and instructions say |
|---|---|---|
| Line 5 | “Tax-exempt securities (see instructions)” | “State and local government obligations, the interest on which is excludable from gross income under section 103(a)” |
| Line 7 | “Loans to shareholders” | The instructions have no separate paragraph for line 7. The form caption is the only text. |
| Line 15 | “Total assets” | “If the corporation is required to complete Schedule L, include total assets reported on Schedule L, line 15, column (d), on page 1, item F.” |
For line 5 the instructions give a second item: “Stock in a mutual fund or other regulated investment company that distributed exempt-interest dividends during the tax year of the corporation.”
Liabilities and shareholders’ equity, lines 16 to 27
The form lists accounts payable, mortgages, notes and bonds, “Loans from shareholders” on line 19, the capital stock and equity accounts, and “Total liabilities and shareholders’ equity” on line 27. The instructions comment on lines 24 and 25 only.
| Line | Form caption | What the instructions say |
|---|---|---|
| Line 24 | “Retained earnings” | “If the corporation maintains separate accounts for appropriated and unappropriated retained earnings, it may want to continue such accounting for purposes of preparing its financial balance sheet.” |
| Line 25 | “Adjustments to shareholders’ equity (attach statement)” | “The following are some examples of adjustments to report on this line.” “If the total adjustment to be entered is a negative amount, enter the amount in parentheses.” |
The instructions list examples for line 25 including “Unrealized gains and losses on securities held” (the full wording is on the instruction page) and “Foreign currency translation adjustments.” The line 24 paragraph adds that if the corporation later becomes a C corporation, it “will be required to report its appropriated and unappropriated retained earnings on separate lines of Form 1120, Schedule L.” The C corporation return is on the Form 1120 page.
Loans from shareholders and total assets elsewhere on the return
Two other parts of the instructions refer back to Schedule L. For the shareholder loans line: “Generally, the amount reported on Schedule L, line 19, Loans from shareholders, should reconcile to the sum of all amounts reported on Schedules K-1.” For page 1, item F: “If the corporation is required to complete Schedule L, enter total assets from Schedule L, line 15, column (d), on Form 1120S, page 1, item F.”
If the S election ended during the year
The instructions say “If the S election terminated during the tax year and the corporation reverted to a C corporation, the year-end balance sheet should generally agree with the books and records at the end of the C short year.” They add an exception: “However, if the corporation elected under section 1362(e)(3) to have items assigned to each short year under normal tax accounting rules, the year-end balance sheet should agree with the books and records at the end of the S short year.” The election itself is covered on the Form 2553 page.
Where the number comes from
Every Schedule L amount comes from the corporation’s books and records, as the opening instruction says, at the start and at the end of the year. The beginning columns are the corporation’s own balances at the start of the tax year, and the end columns feed item F on page 1. The instructions have no separate paragraph for the other lines, so those lines follow the form’s captions.
Where it goes next
The line 15, column (d) total goes to item F on page 1, as quoted above, and the line 19 shareholder loan total is checked against the Schedules K-1. The same form page carries the reconciliation schedules: the Schedule K lines 17 and 18 page ends with the line 18 tie-out, and the Schedule M-1 and Schedule M-2 pages cover the next two schedules.
Edition and line numbers
This page reads the 2025 Form 1120-S and its 2025 instructions, the current files irs.gov served on 2026-10-18. They are the files for the tax year 2025 return, filed in 2026. Form 1120-S prints the title line “U.S. Income Tax Return for an S Corporation”, with the header “For calendar year 2025 or tax year beginning”. Check the tax year printed on the form you are filling in and use the line numbers on that year’s form, because a different year’s form can number or word its lines differently.
Common mistakes
- Letting the balance sheet drift from the ledgers. The instructions say “The balance sheets should agree with the corporation’s books and records.”
- Completing Schedule L when the Schedule B answer excuses it. The instructions say “Schedule L isn’t required to be completed if the corporation answered” Yes to question 11 on Schedule B.
- Entering a negative adjustment without parentheses on line 25. The instructions say “If the total adjustment to be entered is a negative amount, enter the amount in parentheses.”
Related: Form 1120-S, Form 1120, Form 2553, and Form 7203.
Sources
- Instructions for Form 1120-S, U.S. Income Tax Return for an S Corporation (2025): https://www.irs.gov/pub/irs-pdf/i1120s.pdf
- Form 1120-S, U.S. Income Tax Return for an S Corporation (2025): https://www.irs.gov/pub/irs-pdf/f1120s.pdf
Read from the IRS documents linked above on October 18, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.