What is a suspense account?

Suspense accounts on balance sheets are not desirable since they might make it difficult to balance the books appropriately. There are several best practices that can be applied to the use of a suspense account. First, regularly review the items in the account, with the objective of shifting transactions into their appropriate accounts as soon as possible. Accordingly, there should be a daily measurement of the balance in the suspense account, which the controller uses as the trigger for ongoing investigations. Finally, all suspense account items should be researched and eliminated by the end of the fiscal year.

They will then insert a suspense account, which records and temporarily stores these discrepancies. Once the accountant identifies the problematic transaction, they can transfer that entry out of the suspense account https://www.bookkeeping-reviews.com/xero-vs-zoho-books/ and into the appropriate account. In doing so, the accountant resolves the error and is able to balance your books. This process is known as “zeroing” the suspense account, and should be performed on a regular basis.

Use a Suspense Account for Questionable Transactions

Whilst performing a bank reconciliation, Michelle discovered a payment in the bank statement for $120 which was made on 1 September 20X8. At first, Michelle did not recognise the amount so she included this in her accounting records by debiting the suspense account and crediting the bank account. On investigation, she discovered that it was a direct debit for a subscription to an IT support service. The payment relates to IT support services which Michelle will make use of from 1 September 20X8 to 31 August 20X9. An illustrative example Michelle runs a small business and does her own bookkeeping but does not have very much experience in this yet.

It is useful to have a suspense account, rather than not recording transactions at all until there is sufficient information available to create an entry to the correct account(s). Otherwise, larger unreported transactions may not be recorded by the end of a reporting period, resulting in inaccurate financial results. In accounting for small business, most suspense accounts are cleared out on a regular basis. Move suspense account entries into their designated accounts to make the suspense balance zero. Accounting is about hard numbers, but human errors naturally occur from time to time. If you own a business, you may wonder how accountants handle these errors and accurately balance your books despite them.

Once the accounting staff investigates and clarifies the purpose of this type of transaction, it shifts the transaction out of the suspense account and into the correct account(s). When you open an accounting suspense account, the transaction is considered in suspense. This keeps uncategorized transactions separate from categorized transactions.

At that point, the suspense account should achieve a balance of zero dollars. While there is no definitive timetable for conducting a clearing-out process, many businesses try to regularly accomplish this on a monthly or quarterly basis. In mortgage servicing, the servicer can use a suspense account to park funds temporarily if a borrower has made only a partial payment for that month. In investing, a suspense account is a type of brokerage account where a customer’s proceeds from selling an investment may be recorded until the customer uses the money to invest in something else. The errors which do not involve a suspense account will, when discovered, be corrected by means of a journal entry between the ledger accounts affected. The errors which do involve a suspense account will also require journal entries to correct them, but one side of the journal entry will be to the suspense account opened for the difference in the accounting records.

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There have been times throughout the year when Michelle has used a suspense account because she was unsure of the correct accounting treatment. She also thinks there may be other errors which occurred that did not involve a suspense account. Large corporations can clear their suspense accounts periodically, whereas small enterprises can do so more often. For suspense account journal entries, open a suspense account in your general ledger.

1. To record this, Michelle processed a journal entry to remove both the $400 trade payable and $500 trade receivable and posted the difference to the suspense account.
2. When you open an accounting suspense account, the transaction is considered in suspense.
3. If so, the liability suspense account is classified as a current liability.
4. There is no standard amount of time for clearing out a suspense account.
5. Without this transaction, the debit and credit columns would not balance.
6. The errors which do involve a suspense account will also require journal entries to correct them, but one side of the journal entry will be to the suspense account opened for the difference in the accounting records.

For an accountant to show a suspense account on balance sheet documents is more direct than it seems, because it isn’t much different from other accounts. For instance, if the accountant or the owner isn’t sure which account to place a transaction into, then it’ll be moved to the suspense account for the time being. An accountant was instructed to record a significant number of journal entries written by the controller of a large company.

You also avoid failing to record a transaction because of missing information. When you get the information you need, reverse the suspense account entry and make an entry in the permanent account. This closes out the suspense account and posts the transaction to the correct account. A suspense account is an account where you record unclassified transactions. The account temporarily holds entries while you decide how you will classify them.

Suspense accounts and error correction

A mortgage servicer can use a suspense account to hold funds when a borrower falls short on their required monthly loan repayment, possibly by accident. Suspense accounts exist because we’re all human, and errors happen. When it comes to your business, however, bookkeeping errors can be costly. BooksTime bookkeepers can help you balance your books with confidence and precision.

You buy a fixed asset but don’t receive it until it’s paid off

Use a suspense account when you buy a fixed asset on a payment plan but do not receive it until you fully pay it off. After you make the final payment and receive the item, close the suspense account and open a separate asset account. If you don’t know who made the payment, look at your outstanding customer invoices and find which one matches the payment amount. Contact the customer to verify that it’s their payment and the right invoice. List the suspense account under “Other Assets” on your trial balance sheet.

For example, if a customer of a business makes a payment but writes down their account number incorrectly, that money may be parked in a suspense account until the error is corrected and the payment can be properly credited. In another scenario, a customer selling general and administrative expenses sganda might make a payment but fail to specify which of several outstanding invoices they intended to pay off with those funds. The accountant will then credit the suspense account with $50 and debit the cash account with the same transaction amount.