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.

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