Suspense Accounts in Accounting: Purpose and Management

Sales returns for goods sold on credit in September 20X8 of $8,980 were accidentally recorded by processing a sales invoice. This might happen where a purchase invoice is accidentally entered as if it were a credit note received from a supplier. The difference in trial balance is temporarily transferred to suspense a/c. This is because unallocated transactions get more difficult to reconcile with passing time, especially if there is insufficient documentation, and the account balance could grow uncontrollably. A customer paid $1,000 in cash without specifying which invoice the payment relates to.

When to use suspense accounts

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. Otherwise, a company is issuing financial statements that contain unidentified transactions, and which are therefore incorrect.

• Otherwise, larger unreported transactions may not be recorded by the end of a reporting period, resulting in inaccurate financial results.
• This might happen where a purchase invoice is accidentally entered as if it were a credit note received from a supplier.
• Their existence is pivotal to maintaining the integrity of financial records while accountants work to unravel and properly allocate ambiguous entries.
• A suspense account is an account used to temporarily store transactions for which there is uncertainty about where they should be recorded.
• A suspense account may be added to the trial balance when there are understated or overstated balances that cannot be corrected before the end of the reporting period.
• For suspense account journal entries, open a suspense account in your general ledger.

Interested in automating the way you get paid? GoCardless can help

If so, the liability suspense account is classified as a current liability. Another instance in which having a suspense account comes in handy is when a trial balance is out of balance, meaning the debit and credit columns do not match. 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.

How is the suspense account balance entered into the general ledger?

This accounting practice helps in maintaining the accuracy of financial statements while additional information is gathered. Suspense accounts serve as temporary placeholders in accounting, helping to manage transactions that cannot be immediately classified or resolved. A suspense account is an account used to temporarily store transactions for which there is uncertainty about where they should be recorded.

How Highradius Can Help You Balance Your General Ledger Seamlessly

As a small business owner in Canada, you encounter many documents and terms that go along with them. Depending on how long you’ve been in business, you may or may not have come across suspense account transactions. Because the suspense account reflects transactions that are not fully documented or properly assigned, it can be hard to know on which side of the ledger they belong.

Just a Few More Details

• If there is credit balance in suspense a/c, it is shown on asset side of balance sheet.
• After an entry in the suspense account is clarified, it will be assigned permanently to the proper account.
• Even if there is no timeline set by regulatory authorities for the clear-out process, businesses routinely carry out monthly or quarterly suspense account reconciliations.
• 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.
• A general ledger is where a business records its assets and liabilities on an ongoing basis, broken into separate categories or accounts.
• Suspense accounts help you avoid recording transactions in the wrong accounts.
• A suspense account on a balance sheet is a temporary holding place for transactions that are unclear or not ready to be classified into a definitive account.

By following these steps, you can effectively use suspense accounts to manage uncertain or incomplete transactions. This practice not only helps in keeping your financial records organized but also aids in ensuring compliance and accuracy in financial reporting. 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. 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.

Why You Can Trust Finance Strategists

A suspense account is an account used temporarily to carry doubtful entries and discrepancies pending their analysis and permanent classification. Cash received from Unreal Pvt Ltd. for 5,000 is wrongly posted to Unreal Pvt Ltd’s. The difference amount is temporarily recorded in a suspense a/c and should be cleared at some point as it possesses a control risk.

Example 1: Trial balance adjustment

Until they withdraw, the remittance stays in a suspense account, earning the financial institute or the BB enabler float/interest on that money. When customer withdrawal is completed, the money moves from the suspense account to the account of the agent who facilitated the cash withdrawal. It can be a repository for monetary transactions (cash receipts, cash disbursements and journal entries) entered with invalid account numbers. If one of these conditions applies, the transaction should be directed to a suspense account.

Frequency: How Often Should Suspense Accounts be Reconciled?