In the United States, S corporations use the Accumulated Adjustments Account (AA) as a tax-specific account. It monitors the corporation's undelivered earnings that have already been taxed on shareholders. The distribution of income ensures that it is not taxed again.

Here are some significant aspects of AAA:

• When a corporation elects S corporation status, it sets a starting point of zero.
• Taxable income is the cause of its increase and losses or distributions are the cause of its decrease.
• Since the income has already been taxed, distributions from AAA are generally free for shareholders.
• AAA is not related to retained earnings, which is an accounting concept that depicts a company's profitability.

Subchapter C earnings and profits from an S corporation are first viewed as a return of capital, with the amount of shareholder's AAA (Accumulated Adjustments Account) balance being taken into account when distribution is made. The distribution is regarded as a return of the shareholder's investment and not subject to immediate taxation. Taxability only occurs when the adjustment account balance is depleted.In a straightforward manner, if the total distribution is $75,000 and AAA has $50,000 in S-Corporation. First, out of 75,000, $50,000 will be distributed to stockholders against AAA, because the tax is already paid on AAA. Subsequently, the balance will be subtracted from the earnings and profits of C Corporation.