If one of these conditions applies, the transaction should be directed to a suspense account. An illustrative example
Michelle runs a small business and does her own bookkeeping but does not have very much experience in this yet. There have been times throughout the year when Michelle has used a suspense account because she was unsure of the correct accounting treatment. She also thinks there may be other errors which occurred that did not involve a suspense account. Suspense accounts and error correction are popular topics for examiners because they test candidates’ understanding of bookkeeping principles so well.
It remains there until the reasons for the imbalance are discovered and corrected. If your trial balance debits are larger than the credits, the difference is recorded in the suspense account as a credit. Typically, all you’ll have to do is call customers, check over financial statements, and go through invoices to allocate payments to their respective accounts. If you still find yourself with unclassified transactions, you may have to dig deeper to find the missing information.
These unmatched amounts should not be left in amongst your already-identified transactions. The suspense account gives them a temporary place until they can be properly placed. The BlackLine Account Reconciliations product, a full account reconciliation solution, includes a suspense template which serves as a complete solution for managing suspense accounts. As a requirement under Sarbanes-Oxley (SOX), these accounts must be analyzed by type of product, aging category, and business justification in order to understand what is still in the account.
When working with the trial balance, you can open one suspense account to hold all of the discrepancies until you find them. However, suspense accounts are temporary accounts that must be closed by the end of your accounting cycle. 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).
To account for the payment, open a Suspense Account and credit the account with the full $500. When you find out which customer made the payment, debit the Suspense Account for $500 and credit your Account Receivable customers account for $500. This closes out your suspense account and posts the payment to the correct customer account. A suspense account is opened whenever you receive a payment and you cannot identify which invoice the customer wants paid or which customer made the payment. If your customer sent in a partial payment, contact the customer to find out which items or invoices the payment covers. A mortgage suspense account will most commonly be used when borrowers make partial payments.
As soon as possible, the amount(s) in the suspense account should be moved to the proper account(s). Let us make in-depth study of the meaning, utility and preparation of suspense account. Double Entry Bookkeeping is here to provide you with free online information to help you learn and understand bookkeeping and introductory accounting. Let’s suppose a company receives a cash sum of $500 but it cannot figure out who the money is from or what it is for.
Let’s suppose you receive a payment from an unknown entity; or the sender is known but you are not sure which invoice they are paying for. Any opinions, analyses, reviews or recommendations expressed here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any financial institution.
Suspense Account
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- All suspense account items should be eliminated by the end of the fiscal year.
- For example, payments may be received with invalid or unclear account information.
- A suspense account may also be established if further information is needed to finalize the transaction or if there are other complications that need to be resolved.
- The suspense account in accounting is a general ledger account used to make temporary unclassified transaction postings until the correct classification can be determined using transaction analysis.
- If you cannot identify the customer, hold the payment in suspense until a customer comes forward to claim the payment.
Simply sticking with ‘the way it’s always been done’ is a thing of the past. BlackLine’s foundation for modern accounting creates a streamlined and automated close. We’re dedicated to delivering the most value in the shortest amount of time, equipping you to not only control close chaos, but also foster F&A excellence.
If you don’t know who made the payment, look at your outstanding customer invoices and find which one matches the payment amount. Contact the customer to verify that it’s their payment and the right invoice. A general ledger is where a business records what is posting in accounting 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.
Classification of Suspense Accounts
A customer paid $1,000 in cash without specifying which invoice the payment relates to. Suspense accounts are also used by lenders, such as mortgage providers, when borrowers accidentally or intentionally break up their regular payment obligations. Let’s suppose you have been alerted that a remittance someone sent you from abroad is ready for withdrawal. Until you actually make the withdrawal from the agent or financial institution, the remittance money may be stored in their suspense account. There is an uncertainty regarding transaction classification at the time of its entry into an accounting system.
A lot of people like to split their mortgage payment into two payments, so the loan servicer would create a suspense account to hold the first partial payment. However, sometimes a borrower falls short, meaning they only make a partial payment, or they overpay. In that case, that money may go into a mortgage suspense account until it’s determined how to properly distribute those funds. You’ll need to open an account in the general ledger to account for suspense account journal entries.
This can make it difficult to match up with the invoice, particularly if the customer has multiple outstanding invoices. If you have too much credit compared to debits, then you record the difference as a debit on the account. If the debts are higher, then register the difference as a credit instead.
Using a suspense account
To sustain timely performance of daily activities, banking and financial services organizations are turning to modern accounting and finance practices. Whilst performing a bank reconciliation, Michelle discovered a payment in the bank statement for $120 which was made on 1 September 20X8. At first, Michelle did not recognise the amount so she included this in her accounting records by debiting the suspense account and crediting the bank account.
When to Use Suspense Account
The purpose of suspense account entries is to temporarily hold uncategorized transactions. Close the account after moving the entry to the correct permanent account. Similar to the other types of suspense accounts, brokerage suspense accounts temporarily hold funds while transactions are completed.
What type of account is a suspense account?
Without posting such transactions, there may be transactions that are not recorded by the end of a reporting period, resulting in inaccurate financial results. BlackLine is an SAP platinum partner and a part of your SAP financial mission control center. Our solutions complement SAP software as part of an end-to-end offering for Finance and Accounting.
Suspense accounts and error correction
Once the accounting staff investigates and clarifies the purpose of this type of transaction, it shifts the transaction out of the suspense account and into the correct account(s). Accounts payable suspense accounts are opened when you purchase a fixed asset by making payments but will not receive the asset until it is fully paid off. The suspense account lets you record your payments without assigning the payments to a specific equipment or machinery account. Otherwise, combining the payments with an existing fixed asset would distort the value of that asset. Once the final payment is made and the asset is received, you close the suspense account and open a separate account for the new fixed asset. The suspense account is listed on the trial balance under the Other Assets heading.