A negative number is a number less than zero. Negative numbers often have bad connotations as these numbers are associated with cold temperatures, poor performances and losses. Negative numbers also have applications in business and personal finance, particularly debt, where negative numbers and debt have applications in accounting, applying for credit, household debt management and budgeting.
Accounting
Richard Mattessich of the University of British Columbia discusses accounting and negative numbers in his book "The Beginnings of Accounting and Accounting Thought." Modern accounting uses the following formula: assets = liabilities + owner's equity on a balance sheet. If you use the alternative equation, you see that assets - liabilities = owner's equity. In the latter equation, notice the term "- liabilities"; this term indicates that debt is negative. Instead of using negative numbers to represent liabilities and positive numbers to represent gains, modern accounting uses debit and credits, as all balances in accounting must be positive.
Applying for Credit
When you apply for credit in the form of a mortgage home loan, an automobile loan or a bank loan the lender often considers your debt as a percentage of your income. Any amount of money that you owe someone is a debt, such as a credit card payment or an existing loan. Because these are subtracted from your income, these are, in essence, negative numbers. Although debt-to-income is not a negative ratio, you are using negative numbers to determine this ratio.
Household Debt Management
When your receive your credit card, car loan and other debt statements each month, these statements reflect the amounts you are in debt, or negative, to those lenders. The monthly payment is the minimum amount you must subtract from your income each month to stay current on your debts. The total amount is how much you owe all together. Because you took out a loan, you are negative to your lender the amount of the loan minus the value of the asset you purchased with the funds. For example, say you financed a vehicle that is currently worth $8,000 and you still owe $9,000 on the vehicle in total. You are "upside down" or negative $1,000 on that loan. On the other hand, if the vehicle was worth $10,000, you would have $1,000 of equity in the vehicle, or you would be positive $1,000. If you intend on keeping your asset, you must continue to make your payments until you pay the total amount.
Household Budgeting
You can also use negative numbers to subtract your debt and bills from your income to determine your disposable income. If you consider your pay and any other gains positive numbers and your bills, grocery, gas, debt and any other money you have to spend on necessities each month negative numbers, you can easily and accurately calculate your monthly disposable income. Hopefully, your final calculation is a positive number.
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