What it is
The rollforward takes each partner’s capital account from the opening balance through contributions, the allocation of net income or loss, special allocations, distributions and other changes to the closing balance, for up to eight partners. Profit and loss sharing percentages are held separately, because many agreements split losses differently, and the sheet applies the loss percentage when net income is negative.
The total ties to the partners’ capital on the balance sheet and the opening total ties to the prior year. A Schedule M-2 block maps the totals to the line captions of the Form 1065 analysis of partners’ capital accounts: balance at beginning of year, capital contributed, net income (loss) per books, other increases, distributions, other decreases and balance at end of year. Deficit capital balances are flagged in red.
When to use it
- Year-end partnership financial statements and the capital account footnote or schedule.
- Preparing the book capital analysis that feeds the partnership return.
- Auditing or reviewing partners’ capital: recompute the allocation from the agreement and tie each movement.
What’s inside
- Partners tab: names, profit and loss sharing percentages, net income and tie-out amounts
- Rollforward by partner and in total, with ending capital share
- Special allocations row that must net to zero across partners
- Tie-outs to the balance sheet, the prior year and the net income allocated
- Schedule M-2 line mapping with a check to ending capital
Standard cited
This template follows Form 1065 Schedule M-2; partnership agreement. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use.
Questions
How do I handle priority returns and guaranteed payments?
Guaranteed payments are deducted in arriving at net income and are not allocations of it; if they are accrued and credited to capital, enter them as other increases. A priority or preferred return that reallocates income goes in special allocations, which must net to zero across partners. Waterfalls and target capital allocations need their own tab.
What does Schedule M-2 contain?
The analysis of partners’ capital accounts on Form 1065 starts with the balance at the beginning of the year, adds capital contributed, net income (loss) per books and other increases, subtracts distributions (cash and property) and other decreases, and ends with the balance at the end of the year. The mapping block uses those captions.
What if a partner’s capital goes negative?
The cell turns red and the deficit count increases. It prompts a review of the agreement’s deficit restoration terms and the disclosures, and is not necessarily an error.
Is this the tax-basis capital account?
No. It is a book-basis rollforward under the agreement. Item L of Schedule K-1 (Form 1065) reports each partner’s beginning and ending capital account using the tax-basis method, and that figure can differ from the partner’s adjusted basis because adjusted basis includes the partner’s share of liabilities. Keep a separate tax-basis capital schedule for the return.
Related templates
- Equity Rollforward Template (Corporation and LLC)
- Cash Basis Financial Statements Template
- Income Tax Basis Financial Statements Template
- Classified Balance Sheet Template (US GAAP)
Last updated 11/05/2026. All free templates.