Balance of Suspense Account

A suspense account is one in which unclassified transactions are recorded. 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. To hold funds for suspense accounts, you can open a bank account. This separates uncategorized transactions from categorised transactions.

Most suspense accounts in small business accounting are cleared out on a regular basis. The account should have a zero balance in order to be cleared out. Transfer suspense account entries to their respective accounts to bring the suspense balance to zero. You eventually transfer entries from the suspense account to just a permanent account. There is no set time limit for clearing out a suspense account. Most companies clear their suspense accounts on a monthly or quarterly basis.

What kind of account is a Suspense Account?

A suspense account is a general ledger holding account. A suspense account could be an asset or a liability depending on the transaction. If you’re looking for a current asset, the suspense account is it. It holds payments associated with accounts receivable. If you don’t know how to classify your accounts payables, a suspense account may be a liability.

When should you use Suspense Accounts?

There are several reasons to keep an entry in a suspense account. Consider the following examples.

You’re putting together a trial balance

A trial balance is the closing balance of an account at the end of an accounting period. When debits and credits do not match, keep the difference in a suspense account until the problem is resolved. If the trial balance’s credits exceed the debits, record the difference as a debit. If the debits exceed the credits, enter the difference as a credit. On your trial balance sheet, include the suspense account under “Other Assets.” After you’ve made the necessary changes, close the suspense account so it’s no longer a part of the trial.

You received a portion of your payment

If you receive a partial payment from a customer, you may be unsure which invoice they are paying. Keep the partial payment in a holding account until you can contact the customer. When you find the invoice, close the suspense account and transfer the funds to the proper account.

You have no idea who is sending you money

You may receive a payment but be unsure who paid you. If you don’t know who made the payment, check your outstanding customer invoices to see which one corresponds to the payment amount. Contact the customer to ensure that it is their payment and that the invoice is correct.

You purchase a fixed asset but do not receive it until it has been paid off

When you buy a fixed asset on a payment plan but just don’t receive it until you fully pay it off, use a suspense account. Close the suspense account and open a separate asset account once you’ve made the final payment and received the item.

You have no idea how to categorise a transaction

You are not an accountant, but rather the owner of a small business. You may not always know how to classify a transaction. If you’re not sure where to enter a transaction, set up a suspense account and consult with your accountant.

How to Make Use of Suspense Accounts

Suspense account entries are used to temporarily store uncategorized transactions. When you need to use a suspense account, create one. After moving the entry to the correct permanent account, close the account.

Create a suspense account in your general ledger for suspense account journal entries. Enter the entire monetary amount in question. Suspense account entries would then take either a credit or a debit format. Also, in another account, enter the same amount with an opposite entry.

When you have all of the necessary information, reverse the suspense account entry and start making an entry in the permanent account. The suspense account is closed, and the transaction is posted to the correct account.

Example 1 

An accountant was tasked with recording a few journal entries written by a large corporation’s finance director. One transaction’s nature could not be determined at the time of recording. 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. 

Example 2

An accountant was tasked with recording a few journal entries written by a large corporation’s finance director. One transaction’s nature could not be determined at the time of recording. 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.

Conclusion

It aids in the organisation of your accounting books. 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. It’s like a makeshift shelf where all the “miscellaneous” items can be stored until their true nature can be determined. When we record uncertain transactions in permanent accounts, it can lead to balancing problems. It assists us in avoiding recording transactions in incorrect accounts. However, we must ensure that the suspense account balance is zero and that all entries are transferred to their respective accounts in order to provide a more accurate representation of our books.