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.