Is it okay to have negative amounts in the equity section of the balance sheet?

If the current year’s net income is reported as a separate line in the stockholders’ equity or in the owner’s equity section of the balance sheet, a negative amount of net income must be reported. The negative net income occurs when the current year’s revenues are less than the current year’s expenses.

If the cumulative earnings minus the cumulative dividends declared result in a negative amount, there will be a negative amount of retained earnings. This negative amount of retained earnings will be reported as a separate line within stockholders’ equity.

If the amount of negative retained earnings is greater than the amount of paid-in capital, the total of the stockholders’ equity section will also be a negative amount.

To recap, negative amounts can occur and the negative amounts must be reported.

Learn more about Stockholders’ Equity.

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