Accounting Insolvency

Accounting insolvency

Total liabilities exceed total assets. A firm with a negative net worth is insolvent on the books.

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Accounting Insolvency

A situation in which a firm or individual has a negative net worth. That is, accounting insolvency occurs when total liabilities exceed total assets on a firm's or individual's balance sheet. Accounting insolvency does not automatically equate to bankruptcy because the individual or organization may still be able to make monthly payments. This is what differentiates accounting insolvency from standard insolvency, which involves the inability to service debts. Nevertheless, creditors may force corporations with accounting insolvency to restructure payments or declare bankruptcy, depending on the specific situation.