What Does a Balance in Parentheses Mean?

Financial reporting presents an organization’s financial position and performance. A “balance” in finance generally refers to an amount of money, such as funds in an account, a debt owed, or the value of an asset. When reviewing financial documents, you may encounter numbers enclosed in parentheses. These parentheses convey specific financial information.

Understanding Parentheses in Balances

A balance displayed in parentheses universally indicates a negative amount. This is a standard accounting convention used to denote a value that is either less than zero or represents an opposite effect compared to the typical balance for that account type. For instance, if an asset account normally holds a debit balance, a parenthetical figure would signify a credit balance, meaning the account is overdrawn or has a negative cash position. For liability or equity accounts that typically carry credit balances, a parenthetical amount would indicate an unusual debit balance, such as a reduction in debt or equity. This consistent formatting helps users quickly identify subtractions, losses, or other unfavorable figures.

Reasons for Using Parentheses

The use of parentheses instead of a simple minus sign for negative numbers is a long-standing practice in accounting, rooted in historical bookkeeping methods. This convention originated when financial records were maintained manually in ledgers. Parentheses were more easily distinguishable than a small dash or minus sign, which could be overlooked or confused with other markings. This practice enhances readability and helps prevent errors in interpretation, especially when dealing with columns of numbers. The use of parentheses ensures consistency across financial reports, making it easier to identify negative values or reductions.

Where You Might See Parenthetical Balances

Parenthetical balances appear in various financial documents that the general public might encounter.

On a bank statement, you could see a balance like ($25.00) if your checking account is overdrawn, signifying that you owe the bank money.
Credit card statements sometimes display a credit balance in parentheses, such as ($100.00), which means you have overpaid your bill or are due a refund from the issuer.
In investment statements, a loss on a particular investment might be shown as ($500), indicating a decrease in its value.
Simplified financial reports, such as an income statement, will often present a net loss for a period in parentheses, like Net Loss ($10,000), clearly distinguishing it from a profit.
Statements of cash flows might show cash outflows for operating expenses in parentheses, indicating money spent.