Suspense account Definition & Meaning

Suspense Account

Using a suspense account allows the accountant to review each individual transaction in the account before they clear it. The objective here is to shift the transaction to its original/permanent account in time. Because transactions in a suspense account are unallocated, the account should be considered temporary. Likewise, if the trial balance shows debits are larger than credits, the difference should be entered as a credit because the amount will be cleared once the difference has been reconciled. 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.

Suspense Account

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Example #4 – Trial Balance

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. The suspense account can also be used when there are issues regarding which department should be billed for an expense. These funds are placed into the suspense account until these disputes are resolved. The funds are debited to the suspense account for an expense that cannot be decided. When the business receives a payment that cannot be correctly categorized, the transaction credits the suspense account. To properly record the transaction, the business needs to know who it is from. If the transaction is from an unknown customer, it can temporarily be recorded into the suspense account.

Suspense Account

But in the end, we should make sure to reduce the balance to zero and transfer all the entries in their respective accounts to better represent our books. General LedgerA general ledger is an accounting record that compiles every financial transaction of a firm to provide accurate entries for financial statements. The double-entry bookkeeping requires the balance sheet to ensure that the sum of its debit side is equal to the credit side total.

Suspense account definition

There is an uncertainty regarding transaction classification at the time of its entry into an accounting system. Emilie is a Certified Accountant and Banker with Master’s in Business and 15 years of experience in finance and accounting from corporates, financial services firms – and fast growing start-ups. He will move the amount from the Suspense account to the appropriate account as soon as he gets more information about the nature of the transaction. Hence this account helped him to keep the transaction in books of accounts and, at the same time, deter him from putting it under the wrong category. As soon as possible, the amount in the suspense account should be moved to the proper account.

Why suspense account is opened?

Suspense accounts are the accounts that are prepared when the trial balance does not tally or when there is an unidentified transaction. These are prepared temporarily to avoid delay in preparation of financial statements and are closed when the reasons are deducted or at the end of accounting cycle.

It can also be used when there is a difference between the debit and credit side of a closing or trial balance, as a holding area until the reason for error is located and corrected. Most accountants clear out Suspense Accounts on a monthly or cyclical basis, which will give them a zero balance. Because it’s only a temporary account, it’s not good to leave unidentified transactions in suspense for too long. A balance in a suspense account for an extended period is a sloppy way to manage transactions and violates accounting principles.

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