The phrase “in the red” is commonly used to indicate that something is losing money, in debt, or unprofitable. But where does this expression come from and why do we use the color red to signify financial negatives?
In business and accounting, red ink is traditionally used to show negative amounts on financial statements or accounting ledgers. Seeing red on a profit and loss statement means the business has lost money. So being “in the red” came to mean you are operating at a loss.
The origins of using red ink to denote financial losses dates back several centuries. Here we’ll explore the history behind this phrase and its current usage in business and finance.
Origin of “In the Red”
The tradition of using red ink to indicate financial losses came from the widespread use of red ink by creditors and accountants in England in the 18th and 19th centuries. They would write the amounts that debtors owed in red ink in their log books. Red represented that the amount was negative, a debt that needed to be paid.
The use of different colored inks can be traced back even earlier. In the Middle Ages, black ink was expensive and difficult to produce, so scribes would write the basic text in cheaper brown ink. They would then use the more expensive black ink for titles, initials and emphasis. Red ink was also used for titles and initial letters.
So when printing became more commonplace in the 17th and 18th centuries, red ink was already associated with importance. Using it to highlight financial negatives was a natural progression.
Red Ink in Accounting
In double-entry bookkeeping, all transactions are recorded with a debit entry and a credit entry to balance the books. The debit entries were traditionally written in black ink. For credit entries that denoted money owed or losses, red ink was used.
Having red ink represent financial negatives became standard practice in accounting and record keeping. Seeing red in the books meant you were “in the red” and losing money.
This practice continued well into the 20th century. With the advent of computers and accounting software, red ink was replaced by minus signs, parentheses or red-colored text or highlighting. But the “in the red” phrase remains a common idiom in business today.
Current Usage
While actual red ink is rare in modern accounting, the term is still universally used and understood. Some examples of how we use “in the red” today include:
– A company’s earnings report shows negative profits for the quarter. Analysts say the company’s stock price will suffer because they are “in the red.”
– An individual’s bank account balance drops below zero, meaning they have overdrawn it. The bank account is now “in the red.”
– Month after month, an independent retailer sees total sales less than total expenses. Their profit and loss statement is continuously showing red ink, meaning they are operating “in the red.”
– A nonprofit organization relies on donations and grants. But donations have dropped 25% from last year. The director worries they will be “in the red” by the end of the fiscal year.
Related Terms
Being “in the black” is the opposite of being in the red. It means you are profitable, earning money, and have a positive cash flow. This is a reference to black ink being traditionally used for positive amounts in accounting ledgers.
Operating “in the green” is another way to say profitable or earning money. Both “in the black” and “in the green” reference positive financial standing.
So in summary, “in the red” came from the historical use of red ink by accountants to denote losses and debts. Seeing red on the books meant you were losing money. So the color red took on the meaning of unprofitable, negative finances. This useful color-coded idiom endures today in business and accounting circles.
Conclusion
The phrase “in the red” has its roots in the red ink historically used by creditors and accountants to record financial negatives and losses. Although red ink itself is now rare in accounting, the colorful phrase remains the standard way to talk about unprofitable enterprises.
When a business or individual is losing money, has more expenses than revenue, or has debts exceeding assets, they are described as being “in the red.” The red clearly conveys they have negative finances and are not earning a profit. So next time you hear a company is “in the red” you’ll know it harkens back to the days of scribes dipped their pens in red ink to indicate fiscal troubles.
| Term | Meaning |
|---|---|
| In the red | Losing money, unprofitable |
| In the black | Profitable, positive cash flow |
| In the green | Profitable, earning money |
