Negative balances are usually cause for concern, especially when it comes to your business. However, before you panic, you will be happy to know that a negative balance doesn’t always mean that you’re in the red.
There can be several reasons why an account would show a negative balance on a Profit & Loss or Balance Sheet report. In most cases, negative balances should be investigated. Sometimes the negative figure is correct, and in other cases, the negative is due to setup problems within QuickBooks.
Here’s a rundown of possible explanations:
The accounting is correct as shown
Unfortunately, sometimes a negative balance is just a negative balance. For example, an accumulated depreciation account on the asset side of a balance sheet should show a negative balance, as would a prepaid insurance account if the expenses charged to the account exceed the payments.
Incorrect Account Type
Each account type is set up to appear in a specific report with a “normal” balance. For example, the account type Income is set to appear at the top of the income statement and shows as a positive if the account has a credit balance. If an account being used to record expenses is incorrectly assigned an account type of Income, it will appear on reports with a negative balance. The fix in this example is to change the account type to Expense.
Item Code pointing to wrong type of account
When item codes are used for invoicing customers, the transaction is recorded as a credit. If the item code used to generate the invoice points to an account with an account type of Expense, a negative balance will appear.
Transactions charged to wrong account
Selecting the wrong account can cause negatives to appear on financial statements. For example, coding a disbursement to a revenue account would cause the revenue account to show a negative balance.
If you have a problem with negative balances in your QuickBooks Account, we can help you. QuickBooks is meant to make your accounting easier, not more complicated. So, if you have any questions about your QuickBooks account, do not hesitate to ask us.