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The phrase “in the red” is an accounting phrase that indicates a company is losing money. While not attributed to Luca Pacioli — the father of modern accounting — the phrase has become synonymous with a company’s financial position. Historically, many companies made use of paper ledgers and journals to record financial transactions. Most of this information included the use of black ink. In order to quickly notate negative financial numbers, red ink became the standard tool for recording this information, which also included the enclosure of the figure in brackets. Brackets are the mathematical representation of negative numbers.
The first known written use of “in the red” was in the “Wise-crack dictionary” by George H. Maines and Bruce Grant in 1926. The phrase was used to describe the fact that money was lost on theater shows. “Scribner’s Magazine” used the phrase the following year to indicate the company would be “in the red” if they failed to have a good business year. At this time, paper manuals and ledgers were still in popular use and the use of red ink was still common in practice.
While considered slang back in those days, the term has now become known as accounting jargon. Accountants will commonly use this term to describe negative situations in businesses that fail to generate sufficient income from business operations. Although the phrase is commonly used to describe a company’s overall income situation, it can be used to describe specific areas of operation as well.
Modern computerized accounting systems also use red negative numbers to indicate when an account, statement, or report indicates financial figures “in the red.” Although the phrase is not found in the system, the red figures quickly allow business owners and managers to discover which areas are performing poorly. This also allows owners and manager to measure the performance of individual departments or divisions against the company’s entire financial operations. This analysis will indicate which area is creating a drag on the company’s finances.
“In the red” also relates to a company’s budget or cash flow process. Companies use budgets to ensure they do not spend too much money on expenditures that do not bring value to the company. These constraints also place limitations on how much money individual employees can spend on their departments. Operational managers may look to see how much money they can spend on improvements and find they are “in the red” based on budgetary information.