Each week he purchases some of the materials needed to manufacture the bakery’s products and he pays for them with the company’s debit card. Last week he purchased a new refrigerator for $300 but due to his busy schedule he failed to send the receipt of the transaction to his accountant. The amount of money held in suspense account is referred to as the “suspense balance.”
Use a suspense account when you’re not sure where to record general ledger entries. 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. Even if there is no timeline set by regulatory authorities for the clear-out process, businesses routinely carry out monthly or quarterly suspense account reconciliations. While other trial balance errors do exist (e.g., error of omission, commission, principle, original entry, reversal of entries), they do not affect the suspense account.
What Does Suspense Account Mean?
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 account(s). Otherwise, larger unreported transactions may not be recorded by the end of a reporting period, resulting in inaccurate financial results. Both suspense accounts and clearing accounts are used to temporarily record transactions, until they can be permanently assigned. Suspense accounts, https://www.bookstime.com/ however, are more typically used when there is some question about the transaction that needs to be resolved. In mortgage servicing, the servicer can use a suspense account to park funds temporarily if a borrower has made only a partial payment for that month. In investing, a suspense account is a type of brokerage account where a customer’s proceeds from selling an investment may be recorded until the customer uses the money to invest in something else.
- When you open an accounting suspense account, the transaction is considered in suspense.
- Once the department has been specified, the accountant or management will be able to quickly bill that department.
- Suppose a company mistakenly enters a financial transaction into the wrong account due to a data input error.
- When the business receives a payment that it does not know how to categorize, the transaction is temporarily placed in the suspense account.
- Deposits or withdrawals are made for transactions that are yet to be completed.
A business can use a suspense account to record payments it has received but that can’t be properly accounted for until certain missing information (such as an invoice number) is obtained. In mortgage servicing, it is a way for the servicer to record incomplete monthly payments until the borrower has made the payment in full. Brokerage firms also use suspense accounts to, for example, keep track of a customer’s money between the time they sell an investment and when they reinvest that money.
Example 1: Incorrect Entries
A mortgage suspense account is specific to transactions concerning mortgage payments. These may be used by banks and other financial institutions that offer mortgages. The suspense account is used in this scenario when only partial payments are received. Implementing robust accounting systems and processes can help reduce the likelihood of suspense accounts arising. This includes ensuring proper segregation of duties, implementing strong internal controls, automating data entry processes, and regularly updating and maintaining accounting software and systems.
A suspense account is used to provide a separate account for transactions that are unclassified. While the use of accounting software should be making it even easier to keep on top of your accounts, it is inevitable that one or two entries will slip through the net. 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. Suspense accounts have various effects on financial statements, auditing procedures, internal controls, and potential risks and consequences. Understanding these effects is crucial for organizations to appreciate the implications of suspense accounts fully.
Reconciliation: How to Reconcile Suspense Accounts?
The bookkeeper is unable to balance the company’s trial balance, with the credit column exceeding the debit side by $500. At times, all the required details for a particular transaction are not available but it still needs to be recorded suspense account in order to keep the accounting books updated. In short, a suspense account is the point of last resort when you need a short-term holding bay for financial items that will end up somewhere else once their final resting place is decided.
Essentially, a suspense account acts as a catch-all category for items that are pending further investigation or resolution. Suspense accounts on balance sheets are not desirable since they might make it difficult to balance the books appropriately. For an accountant to show a suspense account on balance sheet documents is more direct than it seems, because it isn’t much different from other accounts. 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. An incomplete transaction should neither be overlooked nor entered improperly.
