Accumulated-Adjustments Account Law and Legal Definition

Accumulated-Adjustments Account is an item on the books of an S corporation (usu. an equity item on the corporation's balance sheet) to account for taxable-income items passed through to shareholders, such as accumulated earnings earned before the corporation converted from a C corporation to an S corporation. That was distributed as a dividend to the shareholders if the corporation had remained a C corporation. One of the theories underlying the accumulated-adjustments account is that the shareholders should not be permitted to avoid dividend-tax treatment on a corporation's accumulated earnings just because the corporation converts from C status to S status.