In honor of St. Valentine's Day, a little discussion about what it actually means to "be in the red." Obviously, this is an issue that ranks rather highly on my pet peeve list. While I have no textbook out in the field, I think my stint in public practice as an auditor, albeit relatively brief, does give me enough accounting "street cred" to get away with this post.

Although common parlance among business types, the phrase "in the red" actually does little more than highlight how much the expression's users don't know about accounting. While the common method of teaching accounting includes telling students that "DEBIT MEANS LEFT AND CREDIT MEANS RIGHT," repeated ad nauseum, it isn't quite correct--at least not in every setting. Although the "T-accounts" used in virtually any accounting course will conform to this convention, that's all it is--a convention. Conceptually, debits and credits are just a sort of doppelganger to each other; they're always opposed to one another, regardless of their presentation.

Another common way of denoting debits versus credits includes showing the numbers as positive and negative numbers, respectively, generally denoted with the lack or presence of brackets around the number. When I say "positive and negative," I don't mean it in the mathematical sense per se, but rather it is used to show the conceptual, "double entry" relationship the numbers have to one another. However, just like using brackets to denote credits, the color red denotes the same, often used in conjunction with brackets.

Now recall what net income is. In its most basic form, it's simply REVENUES-EXPENSES= NET INCOME. Conceptually, that's (nominal account) CREDITS - (nominal account) DEBITS = NET INCOME. Obviously, one would typically hope that their NET INCOME account was sporting a hearty CREDIT balance. But wait... we already learned that CREDITS are RED. Therefore, positive income--not losses--puts one "in the red."

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