What is a negative balance?

At a general level, a negative balance is when the ending balance in an accounting record is the reverse of the normal balance that you would expect it to have, based on its classification within the chart of accounts. A negative balance should arise relatively rarely. For example, if an asset account has a credit balance, rather than its normal debit balance, then it is said to have a negative balance.

The following table shows the normal balance for each type of account, as well as whether a debit or credit balance would give it a negative balance:

Account Type	Normal Balance	Negative Balance
Asset	Debit	Credit
Contra Asset	Credit	Debit
Liability	Credit	Debit
Contra Liability	Debit	Credit
Equity	Credit	Debit
Contra Equity	Debit	Credit
Revenue	Credit	Debit
Contra Revenue	Debit	Credit
Expense	Debit	Credit
Gain	Credit	Debit
Loss	Debit	Credit

In general, a negative balance is an indicator that an incorrect accounting transaction may have been entered into an account, and should be investigated. Usually, it either means that the debits and credits were accidentally reversed, or that the wrong account was used. Thus, when closing the books at the end of an accounting period, the investigation of negative account balances is a standard procedure.

At a more specific level, negative balance tends to refer to the checking account, where you have a negative balance if you have issued checks for a larger amount of cash than is available in the checking account. In this situation, you should create a journal entry to shift the amount of the overdrawn checks into the accounts payable or a similar current liability account; doing so reduces the balance in the checking account to zero, and properly displays the overdrawn amount as a liability.

Related Topics

The chart of accounts
Debits and credits
Double entry accounting
What is an account?
What is the normal balance for an account?