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Why is my Office bank balance showing as a negative, when my bank is in credit?

Updated Aug 28th, 2024

Who is this guide for?

Accounts Users and Accounts Supervisors

This guide will take you through an explanation of why an office bank balance would show as negative when the bank is in credit

In solicitors’ accounts, a positive office bank balance is often shown as a negative number due to the accounting conventions used in double-entry bookkeeping.

Double-Entry Bookkeeping Basics

  1. Double-Entry Bookkeeping: This system records each transaction in two accounts: a debit in one and a credit in the other. This helps ensure that the accounting equation (Assets = Liabilities + Equity) remains balanced.
  2. T-Accounts: In a T-account, debits are recorded on the left side and credits on the right side. Depending on the type of account, an increase or decrease in the account balance can be recorded as a debit or a credit.

Understanding Bank Accounts in Double-Entry Bookkeeping

  1. Asset Accounts: Bank accounts are considered asset accounts. In an asset account:
    • Debits increase the balance (e.g., when money is deposited).
    • Credits decrease the balance (e.g., when money is withdrawn).
  2. Liability and Equity Accounts: For these accounts:
    • Debits decrease the balance.
    • Credits increase the balance.

Why a Positive Office Bank Balance is Shown as a Negative Number

  1. Bank’s Perspective: When you look at your bank statement, the bank is showing your account from their perspective:
    • A positive balance means you have money in the bank, which is a liability for the bank (they owe you this money). Thus, it is shown as a credit (negative number in their books).
  2. Solicitor’s Accounts Perspective: When a solicitor maintains their own accounts:
    • The office bank account is an asset to the solicitor.
    • According to double-entry bookkeeping, when the solicitor’s office bank account has money, it is an asset and is recorded as a debit (positive number in their books).
    • However, for presentation or reconciliation with the bank’s statement, some accounting systems display the office bank balance as a negative number, aligning with the bank’s perspective (credit balance in the bank’s books).

Practical Example

  • If a solicitor deposits £1,000 into the office bank account:
    • In the solicitor’s ledger: Debit Office Bank Account £1,000 (increase in asset).
    • In the bank’s ledger: Credit Customer Account £1,000 (increase in liability).

Summary

  • A positive balance in the office bank account represents an asset to the solicitor.
  • Double-entry bookkeeping records this as a debit in the solicitor’s accounts.
  • For reconciliation purposes, it might be shown as a negative number to align with the bank’s perspective, where the bank considers it a liability and thus records it as a credit.

This convention helps maintain consistency and clarity between the solicitor’s records and the bank’s statements.

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