Saturday Brain Storming Thought (185) 19/08/2023
NEGATIVE LIABILITY
Technically, a negative liability is a company asset, and so should be classified as a prepaid expense
Most negative liabilities are created in error, so their presence indicates problems with the underlying accounting system
Negative liability means in case of any negative entry in the present quarter that shall be carried forward to the next quarter
Negative liability under GST
If the cash ledger balance goes negative, the taxpayer must deposit the money using a challan for that amount
The taxpayer may request a refund of the excess amount if the payment of the amount that has been credited to negative liability has been made through DRC-03, DRC-08 or GST-4 of the following financial year
Example of negative liability
If you were to accidentally pay a suppliers invoice twice, the first payment would reduce the original liability recorded in accounts payable to zero, while the second payment would have no offering liability, resulting in a negative liability on the balance sheet
Negative total current liability
If the liability account is negative, there are two situations
We overpaid the loan
Or
We paid much more than the loan amount
Or
There is no opening balance, all loan payments were recorded as debit, and make the balance negative
Negative Balance
A negative credit card balance is when your balance is below zero
It appears as a negative amount balance
Negative liability ledger
A negative liability statement is a report that can be found on the GST login website and contains a negative summary for the present quarter in Form CMP-08, which will be adjusted th the next quarters liability
Negative capital
Negative working capital is when a business’s current liabilities exceed its current income and assets
A temporary negative working capital typically occurs when a business makes a large purchase, such as investing in more stock, new products or equipment
Negative balance in insurance
Negative balance in insurance are created, when that a claim has been overpaid and retracts/re-adjudicates that previously paid claim
Can asset be negative
No, fixed assets cannot be negative
There are accounts that track the reduction and value from wear and tear that fixed asset incur over their life and these negative assets are called Contra Assets and are tracked as accumulated depreciation
Negative debt in balance sheet
A negative net debt means a company has little debt and more cash, while a company with a positive net debt means it has more debt on its balance sheet than liquid assets
Negative Asset
A Contra Asset is a negative asset that offsets the asset account with which it is paired
The purpose of Contra asset account is to store a reserve that reduces the balance in the paired account
Guide to checking the negative liability statement
The taxpayer can have access to the negative liability statement by logging into GST website
1) the taxpayer should access the GST website, click on the option Services and choose the Ledgers option
2) then he needs to navigate to the Negative Liability Statement option to check the negative liability statement
Process for nullifying Negative Liability Statement
In order to invalidate a negative liability adjustment, as the initial step, the taxpayer should raise a ticket on the grievance website or write to the jurisdictional GST officer as soon as he notices this issue
Compiled by:
Er. Avinash Kulkarni
9822011051
Chartered Engineer, Govt Regd Valuer, IBBI Regd Valuer