What is a Suspense Account in Financial Accounting?

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If there is no account for a specific cost, then the user needs to build a new one within the chart of accounts. Leah Lobek, Co-Founder of restaurant chain The London Shell Co, reveals that having a suspense account can help ease the admin burden. “There’s a lot of paperwork, from people’s mobile phone bills to supplier and utility invoices,” she says. Amounts subject to legal dispute are also recorded in a suspense account. Whether new to BlackLine or a longtime customer, we curate events to guide you along every step of your modern accounting journey. Your success is our success.From onboarding to financial operations excellence, our customer success management team helps you unlock measurable value.

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

Keeping an up-to-date record and regularly reviewing your suspense account will help you make sure all is well when it comes to reporting your finances. The procurement department of a large warehousing company receives a bill from a software company that is accompanied by a verifiable purchase order and so issues the payment. However, the purchase order does not specify which departmental budget the cost should be allocated to.

• Trial balances are usually prepared at the end of the reporting period to make sure that all credits and debits are equal.
• Otherwise, a company is issuing financial statements that contain unidentified transactions, and which are therefore incorrect.
• However, if the clearing of suspense accounts is not appropriately monitored and managed, there can be a risk of erroneous financial results and fraudulent activities.
• The longer a transaction remains in a suspense account, the more likely it is that the details of the transaction will be forgotten or lost.
• But many companies try to complete this process on a monthly or even quarterly basis.

Unmatched numbers are marked, ensuring that if you know where they belong, you can quickly go back and balance them. The suspense account is built-in, allowing you to effectively manage all transactions, even if they have not yet been categorised. A suspension account is an account used for any expenditure or balance that can not be established temporarily.

Example #1: Receiving a partial payment

Let’s say that there are errors in the account books of ABC Ltd. as on March 31, 2022. 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. A customer paid an outstanding $1,000 invoice in two partial payments of $500.

What is Intercompany Accounting?

When you find out the invoice, close the suspense account and move the amount to the correct account. There are several best practices that can be applied to the use of a suspense account. First, regularly review the items in the account, with the objective of shifting transactions into their appropriate https://accounting-services.net/ accounts as soon as possible. Accordingly, there should be a daily measurement of the balance in the suspense account, which the controller uses as the trigger for ongoing investigations. Finally, all suspense account items should be researched and eliminated by the end of the fiscal year.

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. At times, all the required details for a particular transaction are not available but it still needs to be recorded in order to keep the accounting books updated. Patriot’s online accounting software is easy to use and made for the non-accountant. 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.

Examples: Suspense Account Journal Entries

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In this sense, disagreement of total of trial balance does not hamper the preparation of final accounts. When the errors are detected, the amount is transferred from Suspense Account to the respective account. Suspense Account stands automatically closed when the entire one sided errors are rectified. Thus, nil balance in Suspense Accounts is the conclusive proof of absence of one-sided errors in the books of accounts. They ensure that you account for all transactions accurately in your books. CAs, experts and businesses can get GST ready with Clear GST software & certification course.

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Whilst performing a bank reconciliation, Michelle discovered a payment in the bank statement for $120 which was made on 1 September 20X8. At first, Michelle did not recognise the amount so she included this in her accounting records by debiting the suspense account and crediting the bank account. On investigation, she discovered that it was a direct debit for a subscription to an IT support service. https://accountingcoaching.online/ The payment relates to IT support services which Michelle will make use of from 1 September 20X8 to 31 August 20X9. 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.