Reduce risk and save time by automating workflows to provide more timely insights. Drive visibility, accountability, and control across every accounting checklist. In this article, we will learn about the subsidiary books, it’s types and purchase return books.
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 trial balance is a worksheet with totals of all accounts in the general ledger. Trial balances are usually prepared at the end of the reporting period to make sure that all credits and debits are equal.
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.
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. 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. Michelle and the supplier agreed to settle the balance owed to Michelle through a contra entry. To record this, Michelle processed a journal entry to remove both the $400 trade payable and $500 trade receivable and posted the difference to the suspense account.
Example #1: Receiving a partial payment
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. Because, even though reporting may be on cash basis, the program still makes all necessary calculations for accrual basis. You might not be able to access all transactions contributing to Suspense unless accrual basis is set. Companies’ assets can be found on their balance sheet, and include many of the same things that a person’s might, including real estate, inventory or even the value of a brand name.
Suspense accounts are temporarily classified as a balance sheet account, usually under the heading of current assets or current liabilities depending on the normal balance. Consequently at the end of each accounting period the business carries out a suspense account reconciliation. Any balance is investigated so that correcting adjustments can be made before the final financial statements are issued. Accordingly irrespective of the issue resulting in the suspense account posting, at the end of the accounting period the account balance reduces to zero with correcting journal entries.
Suspense account definition
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Unfortunately, the best section may not be known at the time of the receipt, and it is hard to say where you will find the suspense account in your own chart of accounts and general ledger. Transactions that are booked before an allocation is made to the appropriate cost or profit center will be recorded in the suspense account until they can be properly assigned. However, all transactions require complete and accurate information before they can be entered into the financial records. To mitigate financial statement risk and increase operational effectiveness, consumer goods organizations are turning to modern accounting and leading best practices.
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. Some jurisdictions have rules and regulations regarding suspense accounts because they are considered a control risk. A customer paid an outstanding what is inventory $1,000 invoice in two partial payments of $500. There are several errors that may be revealed by the trial balance which involve the suspense account. The suspense account can have a debit or a credit balance, depending on which side the trial balance is short. Cash received from Unreal Pvt Ltd. for 5,000 is wrongly posted to Unreal Pvt Ltd’s.
When you receive the full payment from the customer, debit $50 to the suspense account. This closes the suspense account and moves the payment to the correct account. For suspense account journal entries, open a suspense account in your general ledger. 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. You might receive a partial payment from a customer and be unsure about which invoice they’re paying.
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. Ideally, a business will have a zero balance in the suspense account—or no suspense account listed—in its financial statements. Companies come to BlackLine because their traditional manual accounting processes are not sustainable. We help them move to modern accounting by unifying their data and processes, automating repetitive work, and driving accountability through visibility. Since our founding in 2001, BlackLine has become a leading provider of cloud software that automates and controls critical accounting processes.
Placing the suspense account on the balance sheet
A suspense account is an account where you record unclassified transactions. The account temporarily holds entries while you decide how you will classify them. A suspense account can also hold information about discrepancies as you gather more data.
If the credits in the trial balance exceed the debits, record the difference as a debit–and vice versa–to make both columns of the trial balance report balance. 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. The aim of a suspense account in balance sheet terms is always to be a balance of zero, as this means that everything has been correctly recorded, and there are no anomalies unaccounted for. A company’s general ledger needs to show all of your organisation’s financial accounts, including your suspense account. Payments may be received that do not clearly correspond to an invoice.
- In the business world generally, a suspense account is a section of a company’s financial books where it can record ambiguous entries that need further analysis to determine their proper classification.
- To meet the deadline, the accountant entered the “unclassified” amount into the general ledger suspense account.
- 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.
- In reality, under a double-entry bookkeeping method, every kind of error is bound to be identified sooner or later.
- It is used only because a proper account for a particular transaction couldn’t be determined at the time when the transaction was recorded.
For instance, if the accountant or the owner isn’t sure which account to place a transaction into, then it’ll be moved to the suspense account for the time being. 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.
Definition: What Is a Suspense Account?
This doesn’t change the fact that the loan is an asset; however, it is then referred to as a nonperforming asset, as it isn’t producing the value for the lender that it was intended to. 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. In reality, under a double-entry bookkeeping method, every kind of error is bound to be identified sooner or later. The accountant identifies the open invoice against which the amount of 50,000 is to be settled. Extracts of the balance sheet have been attached for better understanding. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.
The account temporarily stores entries while you decide how to categorise them. As you gather more data, a suspense account also can hold information about discrepancies. Once you open an accounting suspense account, the transfer is put on hold. This separates uncategorized transactions from categorised transactions. It aids in ensuring that all transactions are recorded under the appropriate headings. It improves the quality of bookkeeping and the proper representation of all transactions as a result.
Balance Sheet
To meet the deadline, the accountant entered the “unclassified” amount into the general ledger suspense account. As soon as he has more information about the nature of the transaction, he will transfer the funds from the Suspense account to the appropriate account. As a result, this account assisted him in keeping the transaction in the books of accounts while also discouraging him from categorising it incorrectly. A typical suspense account example is running a trial balance to check a double-entry balance sheet. If there is an anomaly, this amount is placed in a suspense account until the balance is corrected, and the amount is accurately placed in the right account. Just like any to-do pile, the suspense account cannot hold your mystery amounts forever, and its proper place will need to be determined.