Another piece of accounting madness


This is another plea for help. Can anyone explain to me the usefulness of ‘negative debits and credits’? (Switch off now if you have no interest at all in accounting.)

This is another piece of accounting madness that afflicts countries touched by the former Soviet Union. (See ‘Correspondence Accounting’  for an even bigger piece.)

Most of us are familiar with the concept of a Debit and a Credit. They oppose each other, rather like matter and anti-matter. A debit of 3 followed by a credit of 3 result in annihilation – zero. So most accounting systems make do with just these two concepts. Adding and subtracting.


Here’s an excellent explanation:

Debits and Credits – An Introduction

But in some parts of the world, including most of Eastern Europe there are four things you can do in an account:

  • A Debit
  • A Negative Debit
  • A Credit
  • A Negative Credit

A Negative Debit cancels a Debit, just as a Credit does, but in a different way. It ‘corrects’ a Debit rather than creates a Credit.

A different way in what sense? In the sense, I believe, that statutory reports will show such ‘corrections’ differently. I have heard the word ‘Turnover’ murmured and I think it has something to do with establishing the turnover of an account, which may be its total Debit value (minus negative Debits) ignoring Credits, or its total Credit value (minus negative Credits) ignoring Debits.

But what is it for?

The issue is far from academic, since it makes the implementation of ‘Western’ accounting software difficult unless it’s been reprogrammed to manage this particular subtlety. The software we sell and implement, SunSystems, can manage this, but many can’t.

Can anyone explain the usefulness of the negative Debit and Credit? Is it somehow a boon for managers, or auditors or accountants?

5 thoughts on “Another piece of accounting madness

  1. hi Adam, I think you may have the answer in identifying corrections from other credits/debits. I have seen a similar idea in Greek sales transactions, there being cancelation of invoices distinct from credit notes.


  2. Hi Adam,
    The use of negative debits and credits or the so called “red storno” helps a lot in P&L report preparation and checking. Let me explain:
    You prepare your P&L from your expense and revenue accounts. Thus it is important to keep “the turnover” of your accounts “clean” in other words not artificially inflated by mistakes and their corrections. This solves two issues:
    – You can still prepare your P&L even if your PL accounts are closed (means zeroed out at the end of the year against the retained earnings). In SunSystems we use 13th period for the closing as a workaround, but many software systems don’t have this feature.
    – A generally accepted practice (in same countries) is to have your different revenue streams in different revenue accounts. But the use of these accounts is different: you post your Sales as credit and your Cost of Sales as debit. Obviously if you don’t have negative debits and credits than the total amount of the credits will not represent your Sales. This can be easily overcome by use of a separate accounts for sales and cost of sales (and by using the account balance to prepare the report), but this is how the accountants are used to see their numbers. You can easily spot your gross margin  in each account.
    Another advantage of this approach is that it gives more realistic view on your business. Let say you have a customer account with 100K debit and 100K credit. If your accounting used the “red storno” approach, then you know that this customer did business with you for 100K for the selected period. In the other approach you might have less than 100K real business with this customer, but the amount was inflated by mistakes and corrections.
    This probably is not exhaustive, because my accounting knowledge is a bit outdated, but I hope will help you understand the demands of the accountants from the Soviet Union school.

    Liked by 1 person

    • Irina, thanks for your comments. It’s true that you can use negative debits and credits for the purposes you mention, but accountants in ‘saner’ regimes are also interested in such things as ‘total business a client has done’ and so on, and they haven’t needed negatives to get such information, have they? it seems to me that there are simply logically equivalent ways of doing the same, without the negatives, and indeed we use special journal types for corrections in SunSystems so that they can be separated from the ‘positive’ variety.

      In the end it’s a matter of taste whether you indicate something with a negative or in some other way, but my taste is for simplicity when it comes to D and C.


  3. SunSystems Implementations – Short is Beautiful – Adam Bager

  4. Hi Andy, I know this article is dated, but I wanted to pass along that I enjoyed it. I had the exact question you posed and was glad to find the insight you had! Be well!


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