FollowTwo very important terms that accounting majors should understand are in the red and in the black. Organizations vary greatly in their purposes and goals, but there is one thing that all organizations have in common, and that is to acquire funds to maintain their operations. It is the accountant’s job to keep track of an organization’s cash flow to ensure that it can maintain proper funds.
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In the Black
For many businesses, in the black refers to the financial situation in which the company is operating at their break-even point. This means that the organization is not operating at a loss, but it is not operating at a profit either. At the break-even point, organizations are able to meet their basic expenses required to operate without experiencing a loss, but they see little to no profits. Basic expenses include such things as utilities, supplies, insurance, and payroll.
In the Red
The website known as Small Business Chron describes the term in the red as that situation in which organizations are operating at a loss. This means that after computing the company’s in and out cash flows, the organization is left with a negative figure. This figure may be large or small, but it means that the organization is spending more money than it is bringing in. In these cases, organizations are unable to meet all of their basic expenses.
In the Green
Many organizations also use the term known as in the green. In the green means that the business is enjoying profits. When the accountant examines the organization’s cash flows, more money is coming in than is going out. In these cases, businesses are well able to meet all of their basic expenses with money left over. Profits can be large or small and can be used for a variety of purposes depending on the particular organization’s needs.
Common Variation of the Terms
While many for-profit and non-profit organizations use all three terms described above in their accounting practices, there are some organizations that only use the terms in the red and in the black. For companies that choose to use just these two terms, in the red still means operating at a loss, but in the black means operating with profits. In this case, if an organization is operating in the black, the accountant will need to examine how closely the incoming cash flows are to the business’ break-even point.
One of the most important things that accountants need to do for organizations is to determine whether the businesses are operating at losses or profits. When describing these situations in the work setting, in the red means that the company is operating at a loss, in the black means that the company is breaking even (or experiencing profits as described in the last section above), and in the green means the company is enjoying profits.
