When creating a business with starting owner investment, double entry accounting says to use a credit balance for the capital account Owner Equity and a debit balance for the asset (e.g. cash).
This is reflected correctly in the summary:
But it shows as negative in the Capital Accounts tab:
For reference, the journal entry:
I am using the desktop version 26.7.6.3652
That looks correct - the negative entry is a credit entry
Debits and Credits are not intrinsically positive and negative. The use of positive and negative in accounting software presentation almost always produces inconsistencies. There are better ways of presentation.
Hello @Brianna,
As @Joe91 just said, credits are displayed as negatives in GL software, you can refer to Odoo, Sap, Microsoft Dynamics, etc.
This is the new convention that works best with digital processing in spreadsheets and other IT solutions.
It’s not wrong, it’s just the new convention and it something to get used to and you’ll never notice it in no time.
I can’t see how given that most, if not all modern ERP software use exactly this convention.
In fact, I think it’s is widely understood by most accountants that (+) means Dr and (-) means Cr.
That’s why I’m extremely opposed to the recent trend of Copy to Clipboard spitting out Dr.s and Cr.s instead of +/-.
In fact, this is one of my greatest areas of frustration as this renders the data unusable in spreadsheets without expending great efforts to work around that.
Simply not true. This assumption is what causes the confusion. In accounting negative or positive depends on the accounting equation and P&L context. In the same way as an increase or decrease in the equation elements produces either a debit or credit.
The journal entry is correct: cash is debited and the owner’s capital account is credited.
The problem is the presentation. The Summary shows the capital balance as positive equity, while the Capital Accounts tab shows the same balance as a negative amount. That is confusing because a normal credit balance in an equity account represents positive owner’s equity, not negative capital.
Manager may internally use positive values for debits and negative values for credits, which may be convenient for calculations or spreadsheet exports. But that is a software sign convention, not a universal accounting convention. In an equity account, an increase is normally recorded as a credit, while a decrease is recorded as a debit. That does not mean the resulting equity balance should be presented to the user as negative.
So the entry is not wrong. The issue is that the same positive equity balance is presented differently in two places, making a normal capital balance look negative.
@AJD, I urge you to check any one of the big ERPs first or ask around to find out what is has been the convention at least since the turn of this millennium.
I agree with @eko that the sign of the detail matching the summary figures, but this should only be a contextual occurance.
In any case, this exact discussion resulted in this format, which is plenty “clear” (I argue otherwise) but completely unusable other than for printing:
When I used to do public audits, I used to return reports like this to the accountants and asked for for +/- formats instead and they used to hate me for this.
Now running an bookkeeping business, I find myself at the receiving end of that, which in not exactly fun.
I think many accountants/auditors can relate to that.
Explain this example for me then:
Using your maxim of +ve = Debit and -ve = Credit, this report is not correct.
Assets - Credit Balance of -$1,800 (negative sign correct)
Liabilities - Credit balance of +$80 (positive sign incorrect)
Equity - Debit Balance of -$1,880 (negative sign incorrect)
As I said in my last post:
I don’t see how would changing the sign from (-) to Cr make it any better? I would argue that it will make it worse since the total wouldn’t make immediate sense. You need to mentally recall that Assets are Dr, then menally convert Cr balances to negatives and then add up the balances to get the total.
The point of your argument, though completely valid, lies in auto reclassification of negative bank balances to liabilities where it would appear positive – possibly under “overdrawn bank balances” or something like that.
Also, that’s not what the OP is about.
The OP wanted to make sense of the situation where she drilled down on a positive figure and got negative detail.
The OP was satisfied with the explanation that it’s a convention applied by modern ERPs to have Cr sign equivalent to negatives.
I’m not dismissing your points @AJD, as I already agreed with you that it is valid, but it’s a different topic altogether, imo.
I do not think anyone is suggesting replacing negative signs with “Cr”.
Two different things are being mixed here. In transaction data or spreadsheet exports, positive and negative values can be used to distinguish debits and credits. But in the presentation of account balances, the sign should reflect the accounting context.
For an equity account, a normal credit balance represents positive equity, while an abnormal debit balance represents negative equity. That is why @AJD’s example is directly relevant and not a separate issue. “Positive = debit and negative = credit” cannot by itself determine how a balance should be displayed.
I agree with @eko here. Positive and negative values mean different things for different types of accounts. My initial post was pointing out that the - sign on the Capital Accounts tab is inconsistent with the + number on the Summary report.
I will not go into this rabbithole again, but I will end my argument with this …
I don’t see any single possible way to eliminate the negatives everywhere but to pepper all screens with Dr and Cr signs.
One alternative is to show negatives on reports, then most people will object to the negatives on management report (in fact, this was the case and an uproar forced the developer to drop that).
Another alternative would be to force breakdowns to match the referring report, this will make such that drill downs from say General Ledger Summary or Transactions > Advanced Queries have different signs than drill down from Balance Sheet or Summary. That still doesn’t eliminate any inconsistency.
The only way to display every figure with the same sign regardless of context is to show Dr and Cr everywhere, which is not good because:
You can spend as much time trying to reinvent the wheel here, but eventually, you will not reach any end-all-be-all solution.
Imo, it’s only logical to stick to what most people are used to which is what we already have.
Feel free to disagree, but I don’t see anything more for me to add to this discussion.
I apologize for the tldr 
You simply cannot avoid “inconsistencies” if you combine two sets of notation – DR and CR for accounting, and + and – for arithmetic – within a single programme.
As mentioned before. Nobody is proposing that negatives should be eliminated everywhere or that Dr and Cr should be added to every screen.
The point is much narrower. The Capital Accounts tab presents equity balances, not raw debit-and-credit transaction data. Within that context, a normal credit balance represents positive capital and a debit balance represents negative capital. The Summary already presents it that way. So not sure why that just can not be fixed to remain consistent.
Displaying capital correctly in this tab would therefore not require changing every report, drill-down or spreadsheet export. It would simply make the sign reflect what the balance means in this particular equity account.
I am going to agree to disagree at this point, because I have spent too much time on this.
I am now using an accounting program that does not display any negative or positive arithmetic signs, and it is possible to use the program without entering any negative amounts (negatives can be used in forms but it is not necessary as debit notes and credit notes can be used).
Parentheses are used, where appropriate, to display contra amounts (e.g. Accum. Depreciation)
I won’t name the program as it will only prompt a stream of comparisons.
I am signing off this discussion.
Cheers.
PS. The use of parentheses enables exports to be compatible with spreadsheets
