Capital account deficit

A capital account deficit occurs when the equity in a business turns negative. This means that the total amount of liabilities exceeds the total amount of assets. For example, if the total amount of assets is $50,000 and total liabilities are $65,000, then the capital account deficit is $15,000.

In this situation, a business is theoretically bankrupt, so management should take corrective action to turn the capital account back to a positive balance, such as by increasing revenues, cutting expenses, and/or contributing more capital to the business.

Related Courses

Corporate Bankruptcy