What Is a Suspense Account? How It Works, Types, and Example

what is a suspense account

When the company gets the entire payment from the customer, they will debit $50 from the suspense account and credit the receivable accounts with the same amount. When the process is finished, the accountant may finally terminate the suspense account and transfer the money to the correct account. Similar to the other types of suspense accounts, brokerage suspense accounts temporarily hold funds while transactions are completed. 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. 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.

If it’s an asset in question, the suspense account is a current asset because it holds payments related to accounts receivable. A suspense account could also be a liability if it holds accounts payables that you don’t know how to classify. On 1 September 20X8, Michelle had a balance outstanding owed to one of her suppliers of $400. That supplier also had a balance outstanding owed to Michelle of $500.

After which, they need to debit the suspense account and credit the accounts payable. Once the department has been specified, the accountant or management will be able to quickly bill that department. Finally, for the buying department to complete the transaction, the accountant will credit the suspense account and debit the supply account. A suspense account is needed because the appropriate account was not determined at the time the transaction was being recorded. As long as a transaction is found in a suspense account and hasn’t yet been transferred to its permanent account, it is placed in the suspense account, acting as its holding account for the transaction. 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.

Otherwise, a company is issuing financial statements that contain unidentified transactions, and which are therefore incorrect. When you record uncertain transactions in permanent accounts, you might have incorrect balances. Suspense accounts help you avoid recording transactions in the wrong accounts.

Without this transaction, the debit and credit columns would not balance. If the credit side had been short, the suspense account would have been added to that column. This might happen where a purchase invoice 2 2 perpetual v. periodic inventory systems financial and managerial accounting is accidentally entered as if it were a credit note received from a supplier. No, unlike mortgage escrow accounts, the money in a mortgage suspense account doesn’t earn any interest for the borrower.

What Is a General Ledger?

Close the account after moving the entry to the correct permanent account. You might receive a partial payment from a customer and be unsure about which invoice they’re paying. Hold the partial payment in a suspense account until you contact the customer. When you find out the invoice, close the suspense account and move the amount to the correct account. Eventually, you allocate entries in the suspense account to a permanent account. There is no standard amount of time for clearing out a suspense account.

  1. This process is known as “zeroing” the suspense account, and should be performed on a regular basis.
  2. A suspense account is one that temporarily records transactions that have yet to be assigned to their proper accounts.
  3. You might be unsure about which department of your business to charge, so you place the amount in a suspense account.
  4. This might happen where a purchase invoice is accidentally entered as if it were a credit note received from a supplier.

The format of suspense account entries will be either a credit or debit. Also, enter the same amount with an opposite entry in another account. A trial balance is the closing balance of an account that you calculate at the end of the accounting period.

Example of Using a Suspense Account

As you can see, there is now a nil balance carried forward in the suspense account. Bank charges for the year of $115 have been omitted from the accounting records. Despite its mysterious connotations, “suspense” in this case simply refers to the fact that a transaction or its designation in a company’s books has been suspended temporarily, pending some further action. As soon as possible, the amount(s) in the suspense account should be moved to the proper account(s). A bookkeeping expert will contact you during business hours to discuss your needs.

what is a suspense account

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. Get up and running with free payroll setup, and enjoy free expert support.

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. If so, the liability suspense account is classified as a current liability.

A suspense account can also hold information about discrepancies as you gather more data. Sometimes, you don’t have all the necessary information https://www.kelleysbookkeeping.com/outsource-accounting-services-for-small-business/ for accounting. Missing or incorrect details can derail your bookkeeping efforts, but you need to record every transaction.

What type of account is a suspense account?

The suspense account is situated on the general ledger and is used to temporarily store specific transaction amounts. Having said that, any sums recorded in this account will ultimately be transferred to another permanent account. A suspense account is an account used to temporarily store transactions for which there is uncertainty about where they should be recorded.

Use a Suspense Account for Questionable Transactions

A suspense account is a general ledger account in which amounts are temporarily recorded. The suspense account is used because the appropriate general ledger account could not be determined at the time that the transaction was recorded. Later, you decide to bill the supplies account of the purchasing department. To close the suspense account, credit the suspense account and debit the supplies account for the purchasing department. If you’re unsure about where to enter a transaction, open a suspense account and talk to your accountant.

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