The problem here, in my experience, is that the Retained Earnings in QB that is used in the Profit/Loss report is not the same as "ordinary business income (loss)" + "rental income (loss) or other net rental income (loss)" as reported on an 1120S, which ultimately reflects in the Accumulated Adjustments Account (AAA).  This can be due to deductions allowed on the 1120S that are not "accounted" for in QB.  The primary one for me is the mileage deduction, which is not an expense in the QB world.  QB provides a nice way to track it, but it is not incorporated in its reports as near as I can tell.  The Tax function in my QB online only contains 1099 and Sales Tax functions.  There may be other similar tax deductions/expenses not considered by QB as well.

For this reason, the RE in QB would not be an accurate accounting of AAA, which ultimately is what is reported, on a shareholder ownership percentage, in Schedule K-1.  It is this amount a shareholder must use to keep track of Stock Basis for the purposes of determining tax liability.  I am thinking that setting up bank or equity account mirroring the AAA is the better way of tracking this.  One would expense/check distributions against this account to account for all those items that reduce or add to the AAA.  The only caveat here is that one cannot reduce the AAA below zero with a distribution so there would be a problem there if one wanted or needed to do this.  That is a tax specific issue so there is no rule against it in accounting to my knowledge, but I am in no way a CPA.