The errors which do not involve a suspense account will, when discovered, be corrected by means of a journal entry between the ledger accounts affected. The errors which do involve a suspense account will also require journal entries to correct them, but one side of the journal entry will be to the suspense account opened for the difference in the accounting records. A suspense account is essentially a bookkeeping technique for keeping track of funds for a brief period until particular issues are resolved.
Having a larger number of unreported transactions would mean that it won’t be recorded by the end of the reporting period, resulting in inaccurate financial outcomes. A suspense account is used to temporarily record transactions that lack the normal, detailed information that accountants require to make proper journal entries into the business’s accounting records. The business sends the client $50 in payment, but the client’s accountant notices that the amount might be incorrect and should actually be closer to $500. While waiting for more information, the accountant debits $50 from a cash account and credits $50 to a suspense account. If your client receives partial payments or payments in installments for a good or service, this is another scenario in which you should use a suspense account for them.
Frequency: How Often Should Suspense Accounts be Reconciled?
Simply sticking with ‘the way it’s always been done’ is a thing of the past. Understand customer data and performance behaviors to minimize the risk of bad debt and the impact of late payments. Monitor changes in real time to identify and analyze customer risk signals. Maximize working capital with the only unified platform for collecting cash, providing credit, and understanding cash flow. Transform your accounts receivable processes with intelligent AR automation that delivers value across your business. When the errors are detected, the amount is transferred from Suspense Account to the respective 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. After an entry in the suspense account is clarified, it will be assigned permanently to the proper account. For example, an entry for a payment will be cleared from the suspense account and entered into the accounts receivable once the corresponding invoice has been identified and the details about the transaction are known. Businesses also use a suspense account to record transactions when there are delays between the receipt of money and the proper assignment in the ledger. For example, money may be transferred to a bank but not deposited into an account, or when money is received by a customer before a policy or contract is written. Working capital, cash flows, collections opportunities, and other critical metrics depend on timely and accurate processes.
What Is a General Ledger?
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. Whether intentional or accidental, partial payments can be tricky to match up to invoices. You can hold them in a suspense account until you know which account they should move to. 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.
By putting the amount on the shorter side of the trial balance, trial balance can be totaled up and balanced. It is worth mentioning that thereafter, as and when the errors get detected, the amount is transferred from Suspense Account to the respective account. In case of disagreement what is suspense account of total of trial balance, the accountant puts the difference on the shorter side of the trial balance as ‘Suspense Account’ and proceeds for preparation of final accounts. In this sense, disagreement of total of trial balance does not hamper the preparation of final accounts.
Do you already work with a financial advisor?
Just as with the main balance sheet, suspense accounts can broadly be divided into assets and liabilities. While a suspense account adds flexibility to updating a ledger, with an American Express® Business Gold Card you get greater flexibility on when the cash for supplier payments actually leaves your business. You get up to 54 days to clear your Card balance, so you can keep your money in the account for longer¹. Suspense accounts can be an incredibly important tool, ensuring you don’t lose track of certain transactions or accidentally enter figures in the wrong place, which can result in errors in your financial statements. 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.
Pearce stresses that the suspense account is supposed to be temporary, allowing you to continue working on accounts without losing any information. As soon as you find out what the transaction was, it must be moved from the suspense account into its correct place on the ledger. One rogue entry into your accounting software will at best disrupt your financial reporting and at worst cost your business money. 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. Therefore, it is vital to have a process in place to clear out the suspense account on regular basis so that all of the suspense account entries are moved into their designated accounts to zero out the suspense balance.
You might be unsure about which department of your business to charge, so you place the amount in a suspense account. When you get the information you need, reverse the suspense account entry and make an entry in the permanent account. This closes out the suspense account and posts the transaction to the correct account. The suspense account is classified as a current asset, since it is most commonly used to store payments related to accounts receivable. It is possible to also have a liability suspense account, to contain accounts payable whose disposition is still being decided.