When to Put Parentheses Around a Number
In accounting, parentheses are commonly used to indicate negative amounts, typically for variables that have decreased in value or represent losses or liabilities. Using parentheses to indicate negative numbers is a widely accepted format in financial reporting and is often considered easier to read than using a minus sign. Here are some specific cases where parentheses may be used around numbers in accounting:
Financial Statements:
- Income Statement: If a company has negative net income (a loss), the amount is often shown in parentheses. For example, a net loss of $5,000 might appear as (5,000)(5,000) on the income statement.
- Balance Sheet: Decreases in asset accounts or increases in liability or equity accounts may also be shown in parentheses. For example, if the company’s cash account decreased by $2,000, it may be shown as (2,000)(2,000) in the statement of cash flows or in the notes.
- Statement of Cash Flows: Outflows of cash, or uses of cash, are generally shown in parentheses. For instance, cash paid to suppliers might be indicated as (10,000)(10,000).
- Budgets and Forecasts: Future projected losses or decreases in financial metrics may be presented in parentheses.
- Equity Statement: If there is a reduction in equity due to buybacks or losses, the number might be shown in parentheses.
- Variance Analysis: When comparing budgeted to actual figures, negative variances (unfavorable outcomes) might be displayed in parentheses.
Journal Entries:
Although it’s less common to use parentheses in journal entries for day-to-day accounting, some software and reports may show credit entries in parentheses as a way to distinguish them from debit entries. In this case, a credit increase to a liability account might appear in parentheses.
Example of When to Put Parentheses Around a Number
Let’s consider a simplified example to demonstrate how parentheses might be used around numbers in accounting. We’ll look at the case of a fictional small business called “GreenLeaf Coffee.”
GreenLeaf Coffee’s Financial Highlights for the Month:
- Total Revenue: $10,000
- Total Operating Expenses: $11,000
- Net Income: ((1,000)) (This is a net loss)
- Decrease in Cash: ((500))
Income Statement:
GreenLeaf Coffee’s income statement might look something like this for the month:
GreenLeaf Coffee
Income Statement
For the Month Ended [Date]
Revenue: $10,000
Operating Expenses: ($11,000)
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Net Income: ($1,000)Here, the numbers for “Operating Expenses” and “Net Income” appear in parentheses to indicate that they are negative figures (i.e., a loss or an outflow).
Statement of Cash Flows:
A simplified version of the statement of cash flows could appear as:
GreenLeaf Coffee
Statement of Cash Flows
For the Month Ended [Date]
Operating Activities:
Net Income: ($1,000)
Adjustments for non-cash items: $ 200
Changes in Working Capital: $ 300
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Net Cash from Operating Activities: ($500)In this example, the “Net Income” and “Net Cash from Operating Activities” are negative, so they are shown in parentheses to indicate a cash outflow or a loss.
By presenting these figures in parentheses, GreenLeaf Coffee makes it easier for readers of the financial statements to immediately recognize them as negative amounts, thus improving clarity and readability.
