What Do Figures in Brackets Mean on a Balance Sheet?

Has your accountant handed you financial statements and left you to work out what they mean? You'd like to understand the figures, but you don't really want to ask — because you know you're on their clock and the bill is climbing. Let's answer one of those questions here, and explain what those figures in brackets mean on your balance sheet.

Most of the time, a bracket or parenthesis on a balance sheet means that figure is a negative number. Where the bracket appears changes what that negative balance actually means. It could be:

• A negative amount
• A bank account that's overdrawn
• Losses — net income in brackets because the business is operating at a loss
• A debit balance in an account that usually carries a credit balance, or the reverse
• A credit card you'd paid off, then made a return against, so the refund shows as a negative

To the untrained eye it can be hard to tell whether those bracketed numbers are bookkeeping errors — yours or your accountant's — or genuine warning signs you need to address.

A Negative Amount

As a general rule in mathematics, brackets indicate a negative number. Accounting is a subset of mathematics, so that principle carries over into the standard reports bookkeepers and accountants produce: the balance sheet, the income statement (also called the profit and loss), and the statement of cash flows.

A Negative Amount in Assets

If a line item under your assets — a bank account, say — shows a number in brackets, that's either cause for alarm or no big deal. Most likely you've overdrawn the account, you've written more checks than you've deposited and they haven't cleared yet, or there are errors in the transactions you've entered and your reconciliation is wrong or out of date.

If you have online access to your bank, check whether the account actually has funds in it. If it's genuinely in the hole and you have the resources to fix it, bring that balance back up right away to avoid penalties from bounced checks.

If there's money in the bank but your balance sheet still shows a bracketed figure, we have to dig a little deeper.

Assuming your bookkeeping is current and your accounts have been reconciled recently, one likely cause is outstanding checks that haven't been cashed.

Shortly after I opened my homecare business, I hired a marketer for a short stretch. He didn't last long, but he did receive one commission check — for seventeen cents. He never cashed it. I imagine it's framed on a wall somewhere.

For years I'd see that seventeen-cent check turn up every time I reconciled. My bank balance and the figure on my balance sheet were off by seventeen cents every month — and under standard accounting principles, that was entirely correct.

Over time those items added up, until there was a real gap between the totals on my balance sheet and the money actually in the account, and some of my accounts started showing negative figures.

Since becoming a bookkeeping professional I've learned how to clear long-outstanding checks like that. If you'd like to know how to handle the same problem, reach out to us at Ensemble Bookkeeping.

We often meet business owners whose bracketed figures shouldn't be there at all, and it traces back to accounts never being entered or reconciled properly.

It's common for owners to come to us having never had their accounts reconciled. If you're not sure what reconciling means, you may be in that group.

In short: reconciliation happens on the same cycle as the statements you receive for your bank accounts and loans — usually monthly, quarterly, or annually. In a system like QuickBooks Online, you enter the statement's opening and closing balances and its closing date, then cross-reference every transaction against that statement to confirm nothing is missing and nothing is duplicated.

A Negative Amount in Liabilities and Equity

Once you cross the midpoint of the balance sheet, the logic reverses. At the top, in assets, a checking account showing $1,000 means you have a thousand dollars in the bank. Further down, in liabilities, a credit card account showing $500 means you owe five hundred.

That's standard GAAP, and it's worth having at least a basic grasp of it.

A Negative Amount in Credit Cards

As mentioned above, a negative number in a credit card line means there's been an overpayment, a refund to the card, or an accounting error. If it's an accounting error, a good bookkeeper or accountant should catch it while reviewing your books.

If the books are clean, the likely cause is an overpayment on that card, or a refund or return credited back to it. If the card is in regular use, this isn't worth worrying about — new charges will absorb the credit, and you can reduce a future payment by that amount.

If the card is rarely used, it may be worth calling the issuer's customer service and asking for a check or a wire back to your account.

A Negative Amount in Owner Equity

Depending on how your chart of accounts is built, you may have a single line for owner equity, or two sub-accounts: owner contributions and owner distributions. Contributions are funds you've put into the business as equity — not loans. Distributions are money you've taken out — not payroll.

If you have the two separate accounts, expect the owner distribution line to be negative and in brackets. If you have a single line, it can go either way, depending on whether you've put more in than you've taken out.

Losses

On a balance sheet, the main place a loss shows up in brackets is near the bottom, on the net income line in the equity section. That figure ties directly to your income statement — the profit and loss report.

If the business is profitable for that period, the number is positive. If it's operating at a loss, it's negative.

A Debit Balance in an Account That Usually Has a Credit Balance, or Vice Versa

One of the harder things for me in learning to be a bookkeeper was getting my head around how credits and debits actually work. I won't go deep into it here — just understand that when an accountant says "debit" or "credit," it can mean close to the opposite of what you'd assume.

So let me make the point without using either word.

If you're looking at a line in the asset section, it most likely needs to be positive. If it's negative, that's worth digging into with your bookkeeper.

If you're looking at a line in the liabilities section and it's in brackets, that's worth raising with your accountant too. One exception is a catch-all account like Ask My Accountant, where both kinds of entry get parked while you or your bookkeeper work out how they should be coded.