Red Ink

What Is Red Ink?

Red ink is business jargon describing a financial loss. When accountants make physical entries into a general ledger, red ink is used to show a negative number and black ink is used to show that a number is positive or profitable.

Understanding Red Ink

In many cultures, tones can function as a kind of language, representing specific feelings and emotions. Some of them evoke quiet and serenity, while others are more loud and powerful.

Red falls under the latter category and is said to connote everything from energy, enthusiasm, and sexuality to aggression, danger, violence, and war. Some of these associations can be described as positive and others negative, yet in financial circles any mention or use of this specific tone quite often means something bad.

Red ink is inseparable from the business expressions: "bleeding red ink" or "in the red." When red is used with numbers it generally indicates that a company, government, or other entity is in financial difficulty, spending more money than it is getting. The variety signifies a negative balance, so an individual entering their overdraft, or who has more liabilities than assets and is unable to pay off debts, can likewise be characterized as being in the red.

Red is often used in business to indicate that something unwanted is happening, too. For example, regulations governing companies are regularly referred to negatively as red tape. Investors may likewise refer to a falling share price or stock market as being in the red.

Black Friday, the day after the Thanksgiving holiday when retailers deeply discount merchandise to draw in shoppers, was given this name because numerous retailers who've been operating "in the red" see their finances go to profit (black) on account of heavy sales.

History of Red Ink

The negative implications of red in finance can principally be attributed to the old custom of accountants picking to use the variety to denote losses. When company books were maintained physically, or manually, red and black ink were convenient methods to call attention to those variables losing money, and those adding value. Red, coincidentally, signified the former.

Significant

The matching of red with losses can be traced back to the tradition of accountants utilizing red-colored ink to enter a negative figure on a company's financial statements.

That propensity has lived on. Today, most financial and operational ledgers are maintained electronically, despite the fact that it is entirely expected for software to utilize red and black shading to highlight losses and gains.

Special Considerations

A company with red ink featuring heavily in its accounts may not necessarily be doomed. A lack of profitability may be a temporary issue, linked to necessary expenditure on research, new technology, or to pay off debt.

These expenses make its financial statements look terrible. However, over the longer term, they should strengthen the company and its ability to make money.

Investors can often overlook red ink assuming they have assurances that outgoings are being used appropriately to chase better growth prospects. As a matter of fact, a significant number of the most well known stocks have high debt-to-equity (D/E) ratios, highlighting a preference for companies that aren't afraid to take risks to secure greater future earnings.

The line might be drawn when a company is consistently in the red. Persistent loss-production could lead it to lose shareholders, fail to draw in new ones, struggle to secure any financing, and end up on the path to bankruptcy.

Highlights

That custom paved the way for the term "in the red," which can be applied to any company or individual with a negative balance.
When accountants make physical entries into a general ledger, red ink is used to show a negative number and black ink is used to show that a number is positive or profitable.
Red ink is financial jargon describing the shading of accounting entries used to denote losses or negative outcomes.