In such cases, the accountant may create a suspense account to hold the transaction temporarily until more information is obtained. Businesses with lots of transactions, particularly ones involving staff who are not financially trained, may find they need to use a suspense account more frequently. Lobek notes that now the company uses software to scan invoices, receipts and bills, it is far easier to keep track of transactions. The suspense account is a general ledger account that acts as a holding account until the error is discovered or the unknown transaction is identified.

It can also be used when there is a difference between the debit and credit side of a closing or trial balance, as a holding area until the reason for error is located and corrected. In some cases, a borrower deliberately makes partial payments, by intentionally dividing his monthly payment into two chunks. In such cases, mortgage servicers can use suspense accounts to house the first partial payment until the second payment is remitted.

• However, due to the accounting year’s end, the preparation of the trading and profit and loss account, as well as the balance sheet, cannot be delayed.
• From an accounting perspective, suspense accounts are used to reconcile the ledgers in the occasion that the nature of one or more transactions is unclear.
• It serves as a temporary placeholder for transactions or amounts that require further clarification or investigation before they can be properly recorded.
• A bookkeeping expert will contact you during business hours to discuss your needs.
• The amount of money held in suspense account is referred to as the “suspense balance.”

It prompts the accountant to actively seek the necessary information or clarification to properly allocate the transaction to the appropriate account. This ensures that all transactions are accurately recorded and classified, thus maintaining the accuracy and reliability of financial statements. Whether intentional or accidental, partial payments can be tricky to match up to invoices. You can hold them in a suspense account until you know which account they should move to.

Balance Sheet

As a result, having a suspense account presented on the financial statements with a balance is generally viewed negatively and can weaken the statement to outside investors. Thus, effort should be made to clear suspense accounts at the end of each financial period. A suspense account is a general ledger account in which amounts are temporarily recorded. The suspense account is used because the appropriate general ledger account could not be determined at the time that the transaction was recorded. 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.

• The most important point to understand is that transactions are recorded in the suspense account only temporarily and need to be relocated to their correct permanent accounts as soon as possible.
• It plays a crucial role in maintaining the integrity of financial records and ensuring accurate financial reporting.
• If your trial balance debits are larger than the credits, the difference is recorded in the suspense account as a credit.
• In such cases, a suspense account is created up to adjust the balance and continue with the trading, profit and loss account, and balance sheet.

Some examples of this would be when you receive a partial payment from a customer, or if you are unsure which invoice they are paying off. Once the payment confusion has been settled with the customer, the payment amount can be moved out of the suspense account and into the appropriate account. Both can be of less significance and may depend upon their balance sheet or bookkeeping affairs of their owners.

Timely resolution of suspense is essential to ensure the accuracy of financial records, maintain transparency, comply with accounting standards, facilitate effective decision making, and avoid audit issues. Suspense accounts are temporarily classified as a balance sheet account, usually under the heading of current assets or current liabilities depending on the normal balance. Consequently at the end of each accounting period the business carries out a suspense account reconciliation. Any balance is investigated so that correcting adjustments can be made before the final financial statements are issued. Accordingly irrespective of the issue resulting in the suspense account posting, at the end of the accounting period the account balance reduces to zero with correcting journal entries.

Unidentified revenue

In this article, we have explored the definition of suspense in accounting and the purpose behind its use. We have discussed different types of suspense, including transaction suspense, allocation suspense, timing suspense, and reconciliation suspense. Additionally, we have provided examples of how suspense can arise in various situations. If the cash came from the sale of an asset and couldn’t determine precisely which one it was, the entry would be in the asset suspense account. Despite this, Lobek and her bookkeeper do manage to round up any unidentified transactions and move them from suspense to the main accounts. “A control account like this would typically sit within your trial balance. You would look to clear it down at the end of each accounting period you report on, be it monthly, quarterly, or annually.”

Company Information

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.

Examples: Suspense Account Journal Entries

She also thinks there may be other errors which occurred that did not involve a suspense account. Typically, a suspense account will have a balance equal to the amount of the transaction in question. In some cases, multiple transactions may be assigned to the same suspense account, resulting in a cumulative balance. The suspense account is usually included in the general ledger, where all other accounts are recorded, ensuring that it is visible and identifiable for future reference and resolution. The procurement department of a large warehousing company receives a bill from a software company that is accompanied by a verifiable purchase order and so issues the payment.

Why Do Companies Extend Credit To Customers

The use of suspense enables accountants to proceed with the bookkeeping process while ensuring that transactions are not omitted or misclassified. By utilizing suspense, accountants can ensure the accuracy and reliability of financial statements and maintain the overall efficiency of the bookkeeping process. Although it’s critical for a business’s accounting department to establish a suspense account to address these issues, not all do, which often causes a reconciliation glut down the line.

Suspense Account means the account established by the Trustee for maintaining contributions and forfeitures which have not yet been allocated to Participants. DisclaimerAll content on this website, including dictionary, thesaurus, literature, geography, and other reference data is for informational purposes only. If, for example, the cash was a down payment, either an advance for work to be done or a deposit to secure a product. Deposits or withdrawals are made for transactions that are yet to be completed.

In this article, we will learn in-depth about the suspense account including its definition, examples, how to create, how to record, closing procedure, and much more. Let’s suppose you have been alerted that a remittance someone sent you from abroad is ready how charities make money for withdrawal. Until you actually make the withdrawal from the agent or financial institution, the remittance money may be stored in their suspense account. As soon as possible, the amount(s) in the suspense account should be moved to the proper account(s).