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What Is a Suspense Account?

suspense account

Having been correctly identified, the interest expense account now contains the correct amount of 1,000. 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. The rules that mortgage servicers must follow are spelled out by the Consumer Financial Protection Bureau, which enforces the federal Real Estate Settlement Procedures Act. For example, the periodic account statements that servicers are responsible for providing to borrowers must indicate any payments that have been put into a suspense account and the total amount of money in that account.

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Just like any to-do pile, the suspense account cannot hold your mystery amounts forever, and its proper place will need to be determined. Businesses may decide to clear their suspense accounts quarterly, while smaller companies may do so more often. Regardless of the issues in question, suspense accounts are cleared out once the problem is addressed, at which time the funds are promptly re-shuffled to their correctly designated accounts. At that point, the suspense account should achieve a balance of zero dollars.

What is a Suspense Account in Accounting? Definition and Examples

A suspense account is essentially a bookkeeping technique for keeping track of funds for a brief period until particular issues are resolved. A business can use a suspense account to record payments it has received but that can’t be properly accounted for until certain missing information (such as an invoice number) is obtained. In mortgage servicing, it is a way for the servicer to record incomplete monthly payments until the borrower has made the payment in full.

Sometimes it may happen that the transactions may have some missing information or incorrect details were entered into records. But a business has to record every transaction, in such cases the use of a suspense account is recommended. For example, if your company’s opening ledger has account numbers 1-98, the next account number available to your business will be 100. However, it is recommended to keep a minimum of 25 ledger accounts in order to avoid errors when posting entries. The main purpose of setting up a suspense account is to keep track of temporary transactions that have not yet been posted to the ledger account. These temporary transactions are “suspended” or held in suspense until they can be identified with a specific ledger account.

Suspense Accounts: Types, Examples, and More

When the controller is available, the accountant will get clarification and will move the amount from the suspense account to the appropriate account. A suspense account will be managed by the finance team and serve as a catch-all for unknown amounts. The purpose of a suspense account is to hold amounts that cannot be categorised, so it would not be possible for each department to have a suspense account. If you could identify the department, you would not need to place the payment in a suspense account.

  • They serve as a holding pen for financial amounts that cannot be immediately classified into the standard chart of accounts due to incomplete data or uncertainty regarding their proper placement.
  • A trial balance is the closing balance of an account that you calculate at the end of the accounting period.
  • Unmatched amounts are clearly indicated, meaning you can go back and match them easily once you know where they belong.
  • The suspense account is situated on the general ledger and is used to temporarily store specific transaction amounts.

As cash has been received, an accounting entry will be recorded in the suspense account until the information regarding which invoice the payment is for is provided. These potentially incorrect financial transactions are either initially recorded in the suspense account, or moved from the general ledger into the suspense account. A suspense account is a temporary holding account used to record financial transactions that have questions around their accuracy and validity.

What is the primary purpose of a Suspense Account in business?

Clear can also help you in getting your business registered for Goods & Services Tax Law. Most accounting systems contain a suspense or mispostings account in their chart of accounts, but this is something that you should avoid using unless there are no other options. If you don’t have an account for a specific expense then you may need to create a new one within your chart of accounts. The bookkeeper is unsure whether to debit the office machines account or the electronic appliances account.

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. 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.

Example 3: Accounting Error

Once the department has been specified, the accountant or management will be able to quickly bill that department. Finally, for the buying department to complete the transaction, the accountant will credit the suspense account and debit the supply account. In branchless banking (BB) – banking through mobile for the unbanked – these accounts are used for ‘money-in-transit’.

Sales returns for goods sold on credit in September 20X8 of $8,980 were accidentally recorded by processing a sales invoice. If there is credit balance in suspense a/c, it is shown on asset side of balance sheet. The difference amount is temporarily recorded in a suspense a/c and should be cleared at some point as it possesses a control risk. It is used to mitigate risk which is addressed and when the errors are rectified. If you don’t know who made the payment, look at your outstanding customer invoices and find which one matches the payment amount.


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