Maintenance of Suspense Account

A suspense account is an account used temporarily or permanently to carry doubtful entries and discrepancies pending their analysis and permanent classification.

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.

It is useful to have a suspense account, rather than not recording transactions at all until there is sufficient information available to create an entry to the correct accounts. Otherwise, larger unreported transactions may not be recorded by the end of a reporting period, resulting in inaccurate financial results.

It can be a repository for monetary transactions (cash receipts, cash disbursements and journal entries) entered with invalid account numbers. The account specified may not exist, or it may be deleted/frozen. If one of these conditions applies, the transaction should be directed to a suspense account.

In branchless banking (BB): Banking through mobile for unbanked – these accounts are used for ‘money-in-transit’. For example, sender sends payment from US ACH account to a BB mobile number in Japan. The customer receives an alert on their mobile to withdraw this money from a BB agent. Until they withdraw, the remittance stays in a suspense account, earning the financial institute or the BB enabler float/interest on that money. When customer withdrawal is completed, the money moves from the suspense account to the account of the agent who facilitated the cash withdrawal.

A suspense account is an account in the general ledger in which amounts are temporarily recorded. A suspense account is used when the proper account cannot be determined at the time the transaction is recorded. When the proper account is determined, the amount will be moved from the suspense account to the proper account. 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.

Suspense accounts should be cleared at some point, because they are for temporary use. Suspense accounts are a control risk.

An accountant was instructed to record a significant number of journal entries written by the controller of a large company. Unfortunately, there was one amount that did not have an account designated. In order to complete the assignment by the deadline, the accountant recorded the “mystery” amount in the general ledger Suspense account. When the controller is available, the accountant will get clarification and will move the amount from the Suspense account to the appropriate account.

Errors considered in Suspense Account

All types of errors don’t affect suspense account. Following table shows the types of errors and their involvement in suspense account:

Error type Clarification  Suspense account involved?
1 Omission   As the transaction is not recorded at all, it will not be the part of suspense account. No
2 Error of commission   Transaction is recorded into the correct side of the wrong account. As debit and credit are equally posted, two side is balance. No
3 Error of principle   Transaction are posted to the correct side of the wrong account. Say for example, Plant Repairs (expenses) are debited to Plant Account (Asset). Two sides are balance. No
4 Error of original entry  An incorrect figure is entered in the records and then posted to the correct account.
Say for example: Cash paid $ 1,000 is wrongly recorded as $ 100 and posted in the account $100. Though wrong amount but posted equally , hence two side will balance.
5 Reversal of entries   The amount and accounts are correct, but the account that should have been debited is credited and vice versa. Example: Factory employees are used for plant maintenance:
Correct entry:
Debit: Plant maintenance
Credit: Factory wages
Easily done the wrong way round
6 Addition errors   The amount are incorrectly added in a ledger account. Yes
7 Posting error   a. an entry made in one record but not posted at all
b. an entry in one record is incorrectly posted to another
Examples: cash $10,000 entered in the cash book for the purchase of a car is:
a. not posted at all
b. posted to Motor cars account as $1,000
8 Trial balance errors   Balance is omitted, or incorrectly recorded in preparing the trial balance. Yes
9 Compensating errors   two equal and opposite errors leave the trial balance balancing. Yes, to correct each of the errors as discovered

Difference found in Trial Balance:

Trial Balance is the closing balance of an account which is prepared to know the arithmetical accuracy of the company. If debit and credit of trial balance is not equals, the suspense account is created to prepare the financial statement of the company and the suspense account will be closed appropriate cause of difference is found.

When the credit side of trial balance is larger than debit side, the difference will be shown in Debit side. When the debits side are larger, the difference will be shown in credit side.

When invoice Payment received partially and customers reference is not found:

Sometimes business receives partial payment from its customers and is unsure about which invoice are paid. In this respect, the partials payments hold in the suspense account until contact with the customers. When invoice reference is found, close the suspense account and moves the amount to the correct account.

When invoice Payment received fully but customer reference is not found:

Sometimes you may got full payment from your customers but you unsure who paid to your account. In this situation, a suspense to be created. After getting the invoice reference and details of customers, you will close the suspense accounts and transfer the amount to appropriate heads.

When you buy fixed assets under but assets is not received:

When any fixed assets purchase on a payment plan but don’t receive it until the full payment is made. The assets will be recognized at the time of paid the full installments. Before that a suspense account may be created.

When a business owner records the transactions:

Sometimes the owner of business may record the transactions of the business, and if he is a non-accountant he may not know how to account for. In this case he may keep all the records in suspense account. After discussing with his accountant he may close the suspense account and transfer it to the appropriate heads.

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