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The bank ledger in Tally, Zoho Books or Excel shows a negative balance even though the bank account itself holds money.
Find the first date the ledger turns negative, compare the book balance with the passbook balance on that date, and look for a missing opening balance, a misdated or missing receipt, a missing contra entry for a cash deposit or a payment posted to the wrong bank ledger.
The bank ledger with a running balance, the bank statement for the same period, and the opening balance confirmed from the previous year's closing statement.
The negative balance is cleared by correcting the missing or misdated entry, or, where the account is a genuine overdraft or cash credit, it is regrouped as a borrowing.
A bank ledger goes negative in your books when payments are entered before the receipts that paid for them, when an opening balance or deposit is missing, when a payment is posted to the wrong bank, or when the account really is an overdraft. In most small businesses it is the first two. The fix starts by finding the exact date the balance first drops below zero.
What usually causes it, and how do you fix it?
| Cause | How to spot it | Fix |
|---|---|---|
| Opening balance not entered | Ledger starts at zero on the first day you used the software | Enter the opening balance from the bank statement |
| Receipt dated after the payment it funded | Ledger dips negative for a few days, then recovers | Correct the receipt date to the bank credit date |
| Receipt not entered at all | Ledger stays negative; the passbook shows a credit you cannot find in the books | Enter the missing receipt |
| Cash deposit without a contra entry | Passbook shows a cash deposit; the books show none | Pass a contra entry from cash to bank |
| Payment posted to the wrong bank ledger | One bank ledger too low, another too high by the same amount | Move the voucher to the right bank |
| Genuine overdraft or cash credit | The passbook itself shows a debit balance | Regroup as a borrowing, see below |
A contra entry is an entry between two of your own cash and bank accounts, such as depositing cash into the bank.
Can the books show a negative balance while the bank holds positive money?
Yes, but only because entries are missing or misdated. The bank does not let an ordinary current account go below zero. So if your passbook shows ₹60,000 and your books show minus ₹3,40,000 on the same date, the books are wrong, not the bank.
Put the two balances side by side for each date. The first date they disagree points you to the entry to check. Missing and mistimed entries are explained in more depth in reconciliation errors: missing and mistimed entries.
Worked example
On 1 April your HDFC current account holds ₹60,000. On 10 April a customer pays ₹4,00,000 by RTGS. On 12 April you pay a supplier ₹4,00,000.
Your accountant entered the customer receipt with the invoice date, 14 April, instead of the bank date. So on 12 April your books show:
₹60,000 opening less ₹4,00,000 payment equals minus ₹3,40,000.
The passbook on 12 April shows ₹60,000 plus ₹4,00,000 less ₹4,00,000, which is ₹60,000.
Change the receipt date to 10 April. The book balance on 12 April becomes ₹60,000, the same as the passbook, and the negative balance disappears.
How does a genuine overdraft or cash credit account differ?
An overdraft (OD) or cash credit (CC) account is a borrowing facility. The bank lets you draw beyond zero up to a sanctioned limit and charges interest on what you use. Here a debit balance is real.
In the books, an overdrawn OD or CC account belongs under loans or borrowings, not as a negative figure among your bank assets. In Tally, for example, such accounts are usually created under the Bank OD A/c group rather than Bank Accounts. The overdraft and cash credit reconciliation guide covers how to reconcile them.
What mistakes should you avoid?
- Changing the payment date to make the balance positive. Fix the receipt that is wrong, not the payment that is right.
- Entering a balancing receipt with no source document. It makes the ledger look right and the books wrong.
- Leaving the opening balance at zero after moving to new software. Enter the closing balance from the last statement of the previous period.
- Treating an overdraft as a negative bank asset in the balance sheet. Group it as a borrowing.
Check the passbook balance on the date the ledger first turns negative. If the bank shows a positive balance on that date, the books are missing something.
What to read next
The most common root cause is months of unentered or unreconciled transactions. Read I have months of unreconciled bank statements: where do I start?, then the opening balance reconciliation guide and missing and mistimed entries.
To keep book and bank balances aligned every month, TransactIG matches bank statement lines to your books and lists what is missing in an exception queue; see bank reconciliation software for India.