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Posted on May 4th, 2014, by

Sometimes firms see negative cash balances on the trial balances. What do these negative balances mean? There are 2 possible grounds for a negative cash balance. A bank accepted a company’s checks without enough funds in the firm’s bank account. A firm issued checks in excess of a cash balance in a bank (Armitage, 2005). Usually a negative cash balance occurs on a balance sheet when the money account possesses a credit balance. The negative balance is often caused by a firm texting checks for more than the sum in a general ledger cash account. When making the balance sheet, this negative balance should appear as the existing liability instead of demonstrating negative cash as a current asset. A negative cash balance doesn’t mean the company’s account is overspent. For instance, if an organization writes checks for $100,000 and sends them by e-mail at the end of a daytime to suppliers in the other state, checks might not clear account for 4 days. The ledger account might demonstrate a negative $40,000 but the bank’s checking account may be asserting a positive balance of $60,000. If the firm deposits more than $40,000 next day morning, the balance will not demonstrate an overdraft since the balance will be sufficient to pay the $100,000 of checks when they clear company’s checking account in several days. It is probable for a firm to be quite profitable but have little or even no cash and to have positive cash flow and be not profitable. Some organizations acknowledge profits only when they gather cash. Those are cash-basis firms. Organizations, which recognize income even when they haven’t collected from customers are recognized as accrual basis firms.

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