To avoid any calculations that annualize returns I'll substitute for W's example cash amounts of $100 and -$90. I will also use IRR, but XIRR would give the same result if the dates were one period, e.g. a year, apart. IRR gives a return of -10%. The -10% would make sense if the $100 was a buy and the -$90 was a sale. The cash amounts are the same for each, the equation solved is the same for each, and Excel doesn't ask which type of scenario it is.

I believe the -10% still makes sense for a short sale. Regard it as "paying -10% interest", which can be translated to "receiving +10% interest."

A comparable situation is a loan. Suppose a lender charges 10% interest with cash amounts of -$100 and +$110. IRR answers +10%. The borrower's cash amounts are $100 and -$110. IRR answers +10%. That makes sense -- there is only one loan. Yet the borrower's net cash flow is -$10 and the lender's is +$10. It's similar for the buy and the short. IRR gives the same rate of return but the cash flows are opposite.