When does a negative cash balance appear on the balance sheet? | AccountingCoach (2024)

Definition of Negative Cash Balance

A negative cash balance results when the cash account in a company’s general ledger has a credit balance. The credit or negative balance in the checking account is usually caused by a company writing checks for more than it has in its checking account.

Example of Reporting Negative Cash on the Balance Sheet

When a company prepares its balance sheet, a negative balance in the cash account should be reported as a current liability which it might describe as checks written in excess of cash balance. The logic is that the company likely issued the checks to reduce its accounts payable. Since the issued checks will not be paid by the company’s bank, the company still has the liability.

A negative cash balance in the general ledger does not mean that the company’s bank account is overdrawn. Let’s assume that a company writes checks for $100,000 and mails them at the end of the day to suppliers in another state. Those checks might not clear the company’s bank account until three or four days later. Therefore, it is possible that the company’s Cash account shows a negative $40,000 but at the bank the company’s checking account balance could have a positive balance of $60,000. If the company deposits at least $40,000 tomorrow morning, the bank balance will be large enough for the bank to pay the $100,000 of checks it had written.

When does a negative cash balance appear on the balance sheet? | AccountingCoach (2024)


When does a negative cash balance appear on the balance sheet? | AccountingCoach? ›

A negative cash balance results when the cash account

cash account
In business practice, cash account refers to a business-to-business or business-to-consumer account which is conducted on an immediate payment basis i.e. no credit is offered. It may also refer to an account held with a brokerage firm, in which a client deposits cash to buy stocks, bonds and other securities.
https://en.wikipedia.org › wiki › Cash_account
in a company's general ledger has a credit balance. The credit or negative balance in the checking account is usually caused by a company writing checks for more than it has in its checking account.

How is negative cash balance shown in balance sheet? ›

Assuming that the entire bank account is negative, then the company should present the negative cash balance as a current liability on the balance sheet. Negative bank account balances cannot be netted with bank accounts that have positive bank balances.

How to show a negative balance in accounting? ›

In accounting all Debit Balances are represented with the Positive Sign. And all Credit Balances are represented with a negative sign. Some accountants represent debit balances with a bracket. The negative sign does not literally mean only deduction.

What can be negative on a balance sheet? ›

Negative Liability on Balance Sheet
  • ACCOUNTS PAYABLE is NEGATIVE. Accounts Payable is a current liability that is used to ensure that you will not miss any opening bill. ...
  • Another Liability Account is NEGATIVE. Besides the Accounts Payable, other liability accounts could be negative.
Apr 3, 2024

What does a negative balance in cash book mean? ›

Unfavorable or negative balance means credit balance in cash book. This means that we have taken a loan from the bank i.e. we owe money to the bank. In such a case, the bank expects money from us and we become an asset for the bank.

Why would a company have negative cash? ›

Negative cash flow is when your business has more outgoing than incoming money. You cannot cover your expenses from sales alone. Instead, you need money from investments and financing to make up the difference.

Can there be a negative asset on the balance sheet? ›

The account offsets the balance in the respective asset account that it is paired with on the balance sheet. Normal asset accounts have a debit balance, while contra asset accounts are in a credit balance. Therefore, a contra asset can be regarded as a negative asset account.

How is overdraft shown in a balance sheet? ›

1. Is bank overdraft an asset or liability? Bank overdraft is regarded as a current liability that is payable within the accounting period. It is shown on the liability side of a balance sheet.

What is negative or positive on balance sheet? ›

If a company's assets are worth more than its liabilities, the result is positive net equity. If liabilities are larger than total net assets, then shareholders' equity will be negative.

Can a petty cash balance be negative? ›

The negative balance/amount in the Petty Cash Fund account normally occurs when there is a credit balance. This happens when a business use funds for expenditures more than it has on hand. You'll want to review the transactions in the account to ensure that everything is recorded accurately.

Can you have a negative balance in accounting? ›

A negative balance occurs when the ending balance in an accounting record is the reverse of the expected normal balance. This expectation is based on an account's classification within the chart of accounts. A negative balance should arise relatively rarely.

How do you adjust negative cash balance? ›

Ultimately, be mindful of the amount you spend during this period, and cut down on unnecessary expenses. If you need to pay for a business expense, prioritize the resources that will help you improve your cash flow and grow your business (whether long-term or short-term).

How do you avoid negative cash balance? ›

5 Tips to Manage Negative Cash Flow
  1. Be mindful of your spending and investing. ...
  2. Create a cash flow statement and forecast regularly. ...
  3. Review outgoing expenses regularly. ...
  4. Reduce expenses. ...
  5. Create an emergency budget to accommodate unexpected expenses.
Sep 2, 2022

Is negative cash a debit or credit balance? ›

On a balance sheet, positive values for assets and expenses are debited, and negative balances are credited.

Can cash and cash equivalents be negative in balance sheet? ›

What does a negative cash and cash equivalents balance indicate? A negative cash and cash equivalents balance shows that a company's cash outflows exceed its cash inflows and lacks enough cash reserves to pay its short-term commitments and obligations.

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