Suspense account definition

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. Brokerage firms also use suspense accounts to, for example, keep track of a customer’s money between the time they sell an investment and when they reinvest that money. A suspense account is used to address errors and uncertainties in the ledger. When adding up the Trial Balance, your bookkeeper may notice inconsistencies that prevent the columns from balancing.

Use a suspense account when you’re not sure where to record general ledger entries. A general ledger is where a business records its assets and liabilities on an ongoing basis, broken into separate categories or accounts. Suspense accounts are used for assets or liabilities that require further clarification before they can be assigned a permanent place in the ledger. This suspense account points to another error, which you may have noticed in the Trial Balance. The Cash balance is higher than what was indicated in the Trial Balance and equals to $6,800.

When debits and credits don’t match, hold the difference in a suspense account until you correct it. Suspense accounts and error correction are popular topics for examiners because they test candidates’ understanding of bookkeeping principles so well. A suspense account is a temporary holding account for a bookkeeping entry that will end up somewhere else once the final and correct account is determined. The rules that mortgage servicers must follow are spelled 2020 review of xero practice manager 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. The servicer must also explain what the borrower needs to do in order to have that money applied to their mortgage payment.

Michelle and the supplier agreed to settle the balance owed to Michelle through a contra entry. 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. A suspense account is one that temporarily records transactions that have yet to be assigned to their proper accounts.

Unfortunately, there was one amount that did not have an account designated. In order to complete the assignment by the deadline, the accountant recorded the “mystery” amount in the general ledger Suspense account. When the controller is available, the accountant will get clarification and will move the amount from the Suspense account to the appropriate account.

Most businesses clear out their suspense accounts monthly or quarterly. Both suspense accounts and clearing accounts are used to temporarily record transactions, until they can be permanently assigned. Suspense accounts, however, are more typically used when there is some question about the transaction that needs to be resolved. Accountants use it to store transactions when they are not sure what to do with them – temporarily, of course, because these errors must be resolved in order to balance the books. There are several types of errors in accounting that prevent balanced books and which necessitate the insertion of a suspense account. For the purposes of the exam, any errors which must be identified and corrected will be realistic in terms of a computerised accounting system.

Get a free consultation to learn more about how professional accounting services can help you grow your business while saving you valuable time and money. When you receive the full payment from the customer, debit $50 to the suspense account. This closes the suspense account and moves the payment to the correct account. The purpose of suspense account entries is to temporarily hold uncategorized transactions.

After you make corrections, close the suspense account so that it’s no longer part of the trial balance. Similarly, if a borrower pays more than they owe for a particular month—without designating how those funds should be applied—the servicer may put the extra money into a suspense account for the time https://www.bookkeeping-reviews.com/completed-contract-method-meaning-examples/ being. The term “suspense account” can have several different meanings, depending on the context. In the business world generally, a suspense account is a section of a company’s financial books where it can record ambiguous entries that need further analysis to determine their proper classification.

How to use suspense accounts

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1. A suspense account is an account used to temporarily store transactions for which there is uncertainty about where they should be recorded.
2. There are several best practices that can be applied to the use of a suspense account.
3. If you own a business, you may wonder how accountants handle these errors and accurately balance your books despite them.
4. After which, they need to debit the suspense account and credit the accounts payable.
5. As soon as possible, the amount(s) in the suspense account should be moved to the proper account(s).

The loan was also partially repaid, decreasing the Loan account balance by $2,400. Accordingly, these corrections will be added to the Suspense account and corresponding accounts. As you can see, the accountant still has to find errors that caused a $15,400 difference. You might be unsure about which department of your business to charge, so you place the amount in a suspense account.

Suspense accounts and error correction

Note that a suspense account most commonly takes the form of a current asset or current liability. A suspense account can also take the form of a credit or a debit, depending on what is needed to even out the Trial Balance. This ledger entry allows for a more detailed description of the specific errors at hand. In this example, it was found that payment for office desks and chairs has been recorded in the account for Furniture as $1,500 instead of $5,100. We will first record the difference ($5,100 – $1,500) in the Suspense account and then add an adjusting entry to the appropriate account (Furniture). Suspense accounts in a company’s general ledger typically contain entries where there are uncertainties or discrepancies that need to be resolved.

Often, the bookkeeper can simply scan the books for the culprit and correct the problem. When they can’t identify the error, they rely on a tool called the suspense account. You will likely see a suspense account come up on your business’s Trial Balance, so it is worth understanding how it functions to help balance your books and secure your bottom line.

What type of account is a suspense account?

Patriot’s online accounting software is easy to use and made for the non-accountant. They ensure that you account for all transactions accurately in your books. Sales returns for goods sold on credit in September 20X8 of $8,980 were accidentally recorded by processing a sales invoice. There are several situations for holding an entry in a suspense account. The amount of money held in suspense account is referred to as the “suspense balance.”

If the credits in the trial balance are larger than debits, record the difference as a debit. If the debits are larger than credits, record the difference as a credit. Consider the example Trial Balance above, which contains a $24,000 debit in the form of a suspense account.