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) --------------------------- 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 ------------------------------------------ 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.