At SmartCapitalMind, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.
What does "in the Red" Mean?
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.
AS FEATURED ON:
AS FEATURED ON:
-
![A budget is considered balanced when there is more cash coming in than going out.]()
By: Andy DeanA budget is considered balanced when there is more cash coming in than going out.
Discussion Comments
This reminds me of something I always thought was interesting. Black Friday is the big shopping day after Thanksgiving in the United States.
They've always told everyone that it is called that because it is the first time many of the stores manage to get themselves into "the black" as in, no longer with money in the red.
Actually it was originally called that because the shopping hoards created such disruption for traffic that it was considered a real annoyance.
The shops liked the more positive view and so they always say the name came from there and who can blame them.
@browncoat - I agree it's an awful thing to be "in the red" whether you are an individual or on behalf of a business.
But I don't think that you should always discount borrowing money in order to prevent it. Sure, you should be as cautious as possible, but if you miss opportunities in order to avoid borrowing money, you'll regret it.
If, for example, there's a great sale on a table and you really need a table, there's no point in waiting until you can save up because you'll miss the sale.
Just make sure you pay off the money as soon as possible to put yourself back into the black. Be sensible and never lose sight of the fact that those figures in red on your credit card statements aren't money you actually have, they are money the bank is willing to lend you.
I often use "in the red" as an expression describing a person as well. Basically meaning the same thing though, that a person has more debt than they do assets.
It's a scary place to be and one too many people know all too well. I guess it's no different for a company, although a company has a lot more people depending on it.
This is why I don't think it's ever a good idea to borrow money. It only leads to trouble and it encourages bad habits. You'll end up paying back so much more than you borrowed, only the bank will win.
I have been in the red myself once or twice so I'm not just preaching about it. When I'm in the red I can't sleep I'm always so afraid of what might happen.
Which is why I do everything in my power to make sure I don't go back to that place.
Post your comments