Can You Have Negative Dollars on a Ledger?

In accounting, account balances are entered into a ledger as debits or credits. A debit entry increases an asset -- something you own -- and decreases a liability, which is something you owe. A credit entry does the reverse by decreasing an asset and increasing a liability. The account that typically holds your dollars is the cash account, which can have a positive or negative balance.

There are times when you may have a negative cash balance. This would result in a credit balance for cash in the ledger. This usually results from a bank overdraft. However, a negative cash balance can also result without an overdraft. For example, if you mail out checks on the 15th of the month with insufficient funds to pay them, the ledger would show a negative cash balance. If your company receives sufficient payment on the 17th before the outgoing checks are cashed, the bank balance would be positive and no overdraft would have resulted. This would result in a negative cash balance in the ledger -- temporarily -- without a bank overdraft.

In the case of a negative cash balance, the amount is entered as a credit balance in the ledger. Any payments received are entered in the debit column to bring it to its normal debit balance. Whether this is entered on the balance sheet depends on when the negative balance occurs. The balance sheet lists the assets, liabilities and equity of a company as of a specific date. If the cash balance is negative on the balance sheet date, it will be listed as a liability.

Liabilities are listed on the balance sheet as current liabilities if they are due within one year. If a liability is not due for more than a year, it is listed in the long-term liabilities section of the balance sheet. A negative cash balance or overdraft is listed in the current liabilities section of the balance sheet. If the negative balance is due to an overdraft, it is labeled as a bank overdraft.

Both creditors and investors use the balance sheet to determine the financial well being of your company. Knowing this, some managers will manipulate the data for the balance sheet. For example, some businesses may normally have a negative cash balance. If the balance sheet is due to be released at the end of the month, the company may postpone paying its bills. This can make the cash balance appear higher than it normally would. This technique is referred to as "window dressing." Artificially manipulating the numbers on the balance sheet is not a good idea as it can damage the reputation of your company.