If I have a checking and a credit-card accounts, the first will be considered an asset, and the second a liability.

What happens if the checking account balance is negative (overdraft)? Is it still considered an asset (but negative) or it becomes a liability?

For that matter, if I overpay my credit-card balance does it become an asset?

  • 4
    For what purposes are you using these definitions? In common parlance, you could get the message across calling it various different things, but what is the difference you expect to happen as a result of how you define it? Sep 15, 2020 at 0:51

3 Answers 3


The overdrawn checking account would still be an asset in the context of a balance sheet or any type of aggregation. It would just have a negative balance. Same goes for the overpaid loan - it would remain a liability with a negative balance.

Accounts do not "switch" from assets to liabilities just because of negative balances.

If you had two checking accounts, one with a 100 balance and one with a -100 balance, what would your total assets be? You would not say you had 100 in assets and 100 in liabilities - you would have net zero assets.

From a certain point of view you could say it is a "liability" because you could think of it as a balance that you "owe" but from most every other financial accounting and reporting aspect, it would still be an asset.

  • 1
    You have a liability in the overdraft loan
    – xyious
    Oct 1, 2020 at 14:18

When we consider assets for a balance sheet or other financial statements, the Account Type is not important, but if the line item is an asset or liability.

This means if you had an account open where you actively owed money to another entity, it would be considered a liability.

Similarly, if you had a Credit Card balance that was negative, where the financial institution owed you some value back, it would be considered an asset.

EDIT: Citations would probably be useful for something like this.

A balance sheet is an accounting tool that lists assets and liabilities. An asset is something of value that is owned and can be used to produce something. For example, the cash you own can be used to pay your tuition. A home provides shelter and can be rented out to generate income. A liability is a debt or something you owe.

Liabilities are debts you owe

[The company] has the oblication or liability to repay the bank for the courtesy extended to [the company].

Negative cash balances are reported as a liability

At a more specific level, the negative balance term commonly refers to the checking account, where you have a negative balance if you have issued checks for a larger amount of cash than is available in the checking account. In this situation, create a journal entry to shift the amount of the overdrawn checks into the accounts payable or a similar current liability account; doing so reduces the balance in the checking account to zero, and properly displays the overdrawn amount as a current liability.

Negative balances are recorded as liabilities


If you mean, "what type of account is it on a balance sheet?", it's still an asset account even if the balance is negative.

In a very real sense, having an overdraft of $100 on your checking account is a liability. But we don't change an account type in an accounting system back and forth depending on the balance. That would be a major headache. It's simpler to talk about "negative assets".

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