Accounting Insolvency

DEFINITION of 'Accounting Insolvency'

A situation where the value of a company's liabilities exceeds its assets. Accounting insolvency looks only at the firm's balance sheet, deeming a company "insolvent on the books" when its net worth appears negative.

BREAKING DOWN 'Accounting Insolvency'

Accounting insolvency is a different approach to standard insolvency. The latter involves a firm missing or being unable to make a debt-servicing payment, while the former examines the firm's balance sheet.

When a firm appears to be insolvent on the books, it is likely the debtholders will force a response. The company may attempt to restructure the business to alleviate its debt obligations, or be placed in bankruptcy by the debtholders.

RELATED TERMS
  1. Insolvency

    When an individual or organization can no longer meet its financial ...
  2. Bankruptcy Risk

    The possibility that a company will be unable to meet its debt ...
  3. Insurance Guaranty Association

    An organization that protects policyholders and claimants in ...
  4. Junior Security

    A security that ranks lower than other securities in regards ...
  5. Bridge Bank

    A bank authorized to hold the assets and liabilities of another ...
  6. Central Guarantee Fund

    A fund set aside by state insurance regulators to pay out claims ...
Related Articles
  1. Economics

    Understanding Insolvency

    Persons or businesses that cannot meet their financial obligations are insolvent.
  2. Investing Basics

    5 Tips For Reading A Balance Sheet

    If you know how to read it, the balance sheet provides valuable information on a potential investment.
  3. Fundamental Analysis

    Market Value Versus Book Value

    Understanding the difference between book value and market value is a simple yet fundamentally critical component to analyze a company for investment.
  4. Investing

    Off-Balance-Sheet Entities: An Introduction

    The theory and practice of these entities varies greatly. Investors need to learn what they're getting into.
  5. Investing

    The Difference Between Book and Market Value

    Book value is the price paid for an asset. It never changes as long as the asset is owned. Market value is the current price at which the asset can sell.
  6. Investing

    India's $178 Billion Loan Crisis

    Indian banks have struggled with corporations for years but things may have finally come to a head.
  7. Personal Finance

    What is Net Worth?

    Net worth is the amount by which assets exceed liabilities. Another way to say this is, it's the value of everything you own, minus all your debts.
  8. Markets

    Book Value: How Reliable Is It For Investors?

    In theory, a low P/B ratio means you have a cushion against poor performance. In practice, it is much less certain.
  9. Fundamental Analysis

    Spotting Creative Accounting On The Balance Sheet

    Companies have ways of manipulating their balance sheets that investors should be aware of.
  10. Investing Basics

    Comparing the P&L Statement and the Balance Sheet

    Basically, the balance sheet shows how much a company is worth, while the P&L statement reveals if a company is profitable or not.
RELATED FAQS
  1. I know there is a form of deposit insurance where a portion of my bank account deposits ...

    First things first, it's only partially correct to think that a portion of your bank deposits is protected. The Federal Deposit ... Read Answer >>
  2. Does the balance sheet always balance?

    Yes, a balance sheet should always balance. The name "balance sheet" is based on the fact that assets will equal liabilities ... Read Answer >>
  3. How should investors interpret accounts receivable information on a company's balance ...

    Analyze accounts receivable information on a company's balance sheet carefully. Receivables offer confidence of future cash ... Read Answer >>
  4. How are accounts payable listed on a company's balance sheet?

    Find out how accounts payable is listed on a company's balance sheet, why it is considered a current liability, and how it ... Read Answer >>
  5. What is the difference between book value and market value

    Learn the differences between book value and market value, and see how investors use each type to determine if a company ... Read Answer >>
  6. How can a company with a positive bottom line be more risky than one with a negative ...

    Discover which factors contribute to risk when buying stock. Learn about the impacts of capital structure and cash flow on ... Read Answer >>
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center