if retained earnings line 24 on schedule L balanced at the beginning of the year ending retained earnings goes up by net income or down by net loss (either takes into account depreciation) and down by distributions. any additional contributions to the capital of the corp goes on line 23
the AAA account (m-2) column a cannot go negative because of distributions. so if distributions line 7 exceeds line 6 you may have a tax issue. it depends on your tax basis before distributions. it must be greater than the distributions or you have income from the excess. for 2022 you are also required to complete form 7203 with your 1040 to report the S-Corp activity so theiRS can tell if you have unreported income from distributions that exceed your tax basis.
we can't see your return but now is the time to sit down with a tax pro to explain tax basis and various other rules on reporting for an S-Corp and its shareholders. you don't realize that distributions are a debit from a bookkeeping perspective so it would have to show up on line 7 loans to shareholders which can raise a red flag with the iRS.
