What Is a Suspense Account? How It Works, Types, and Example

It is considered a holding account until the funds are placed into the correct account in the general ledger. This closes the suspense account and moves the payment to the correct account. You might receive a partial payment from a customer and be unsure about which invoice they’re suspense account paying. Hold the partial payment in a suspense account until you contact the customer. When you find out the invoice, close the suspense account and move the amount to the correct account. Eventually, you allocate entries in the suspense account to a permanent account.

A suspense account has a general ledger that you can use for the temporary recording of business transactions. The need for a suspense account arises when you are unable to identify the appropriate ledger account for the transactions which have been recorded. The amount of capital or transformation that is moved to the suspense account is for a brief period. You will need to do a proper investigation to determine the correct ledger account and where the amount should be moved or added. When you are looking to invest money, you can transfer your funds to a suspense account until you decide where to invest that capital.

Where is suspense account shown in the financial statements?

Let’s say that there are errors in the account books of ABC Ltd. as on March 31, 2022. When an accounting error is identified, such as a misclassification of expenses, the incorrect entry would be moved to a suspense account while the error is investigated and then ultimately corrected. In any case, every effort should be made to eliminate all unidentified transactions held in the suspense account by the end of the fiscal year, otherwise the annual financial statements will be inaccurate.

A suspense account will be managed by the finance team and serve as a catch-all for unknown amounts. For efficiency purposes, it is also helpful to track and analyze the entries over time to minimize the reoccurrence of any transactions that cause frequent unnecessary postings into the suspense account. There are several errors that may be revealed by the trial balance which involve the suspense account. The suspense account can hold the difference that led to the trial balance not balancing until the discrepancy is rectified.

Suspense accounts and error correction

A suspense account can also hold information about discrepancies as you gather more data. While companies include a suspense account within their accounting system, they are concerned for the insurance companies. Ordinarily, an insurance company has hundreds of suspense accounts that hold thousands of items. A suspense account is used to provide a separate account for transactions that are unclassified. 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.

• Otherwise, larger unreported transactions may not be recorded by the end of a reporting period, resulting in inaccurate financial results.
• 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.
• Suspense accounts on balance sheets are not desirable since they might make it difficult to balance the books appropriately.
• Investing and brokerage suspense accounts temporarily hold investors’ funds until the money is allocated towards the purchase of new investments.
• An accountant was instructed to record a significant number of journal entries written by the controller of a large company.
• While the use of accounting software should be making it even easier to keep on top of your accounts, it is inevitable that one or two entries will slip through the net.
• Similar to the other types of suspense accounts, brokerage suspense accounts temporarily hold funds while transactions are completed.

As can be seen the original entry to the suspense accounts is reversed, so the balance on the account is zero. Having been correctly identified, the interest expense account now contains the correct amount of 1,000. Remember to consider issues like an inaccurate recording of funds (for example, money going into the cash account and not the sales account) and unrecorded expenses, which can be traced back to their invoices. When a fixed asset is purchased on a monthly payment basis, delivery of the asset takes place after complete payment.

What Is a General Ledger?

Once you have checked invoices and other correspondence and confirmed with the client or customer, you can then move the amount to the appropriate account. All suspense account items should be eliminated by the end of the fiscal year. Otherwise, a company is issuing financial statements that contain unidentified transactions, and which are therefore incorrect. If you’re unsure about where to enter https://www.bookstime.com/ a transaction, open a suspense account and talk to your accountant. 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.

• He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.
• You might receive a partial payment from a customer and be unsure about which invoice they’re paying.
• When the business receives a payment that it does not know how to categorize, the transaction is temporarily placed in the suspense account.
• A suspense account is a temporary holding account to record transactions that are subsequently reallocated to other accounts.
• Sometimes, there needs to be clarity regarding payments due by a client because of unclear invoices.

These temporary transactions are “suspended” or held in suspense until they can be identified with a specific ledger account. If a bookkeeper is unsure about which account to debit or credit in a transaction, they can temporarily place the entry in a suspense account. However, all that being said, due to how suspense accounts work, it may often be hard to determine the nature of the entry accurately enough to use the categories above.