Suspense Account: The Complete Guide + Examples

Sometimes, accounting teams don’t have all the necessary information for a particular transaction. The suspense account is classified as a current asset, since it is most commonly used to store payments related to accounts receivable. It is possible to also have a liability suspense account, to contain accounts payable whose disposition is still being decided.

Suspense Account Examples

Using suspense accounts ensures that your financial statements reflect reality, even if some transactions are temporarily in limbo. Using a suspense account effectively requires a mix of good practices and caution. To keep your books clean and organized, it’s important to know what to do—and what to avoid. From proper record-keeping to timely resolution of entries, here’s a quick guide to the dos and don’ts of managing suspense accounts like a pro. A suspense account is a temporary holding account for all those “what on earth are these?

Suspense 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. 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. Finally, for the buying department to complete the transaction, the accountant will credit the suspense account and debit the supply account. As cash has been received, an accounting entry will be recorded in the suspense account until the missing information is provided or obtained. Suspense accounts and clearing accounts are both used to record transactions on a temporary basis, at least until those transactions have been assigned to their respective place in the general ledger.

However, in the case of suspense account, there is often an added issue that may need resolution. A mortgage suspense account is a catch-all account that would often be used to temporarily hold funds in case a customer overpays or underpays their monthly installments. So, in case a customer fails to pay part of their monthly installments, the funds will go into the suspense account until they are returned. They are primarily used to maintain the integrity of accounting records, especially in complex financial environments where accountants are used to recording multiple transactions daily.

• He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.
• In the banking industry, suspense accounts are commonly used to handle unidentified deposits.
• A suspense account is a component of a company’s financial accounts that is used to record confusing entries that require additional examination to determine their right classification.
• Suppose a company mistakenly enters a financial transaction into the wrong account due to a data input error.

You received a partial payment

Sometimes, businesses encounter transactions or journal entries that require further investigation or clarification before they can be properly recorded. 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. A suspense account is essentially a bookkeeping technique for keeping track of funds for a brief period until particular issues are resolved.

• As long as a transaction is found in a suspense account and hasn’t yet been transferred to its permanent account, it is placed in the suspense account, acting as its holding account for the transaction.
• Without suspense accounts, the risk of inaccuracies or omissions in financial statements would be significantly higher, potentially leading to adverse consequences for businesses and stakeholders.
• Instead of putting it in the wrong category, you park it in the suspense account until the paperwork catches up.
• So the next time you see yourself scratching your head over a mysterious transaction, remember that suspense accounts are here to save the day.
• Once you receive the full payment from the customer, you’re going to debit the suspense account for $100, then credit your Accounts Receivable for the same amount.

#3 – Uncertainty regarding the classification of the transaction

This type of account temporarily holds funds or securities until the correct placement of the transactions can be determined. Accurate bookkeeping lies at the center of ensuring efficient financial reporting. However, as organizations scale, they experience increasing transaction volumes with added complexity. Recording and acknowledging such transactions is essential to ensuring accuracy in financial statements. A suspense account is needed because the appropriate account was not determined at the time the transaction was being recorded.

Regular and timely reconciliation activities can minimize the need what is suspense account for suspense accounts by ensuring the accuracy and completeness of financial records. A suspense account on a balance sheet is a temporary holding place for transactions that are unclear or not ready to be classified into a definitive account. It ensures the balance sheet remains accurate while details are clarified or adjustments are made. Partial payments that do not settle an invoice in full are placed in a suspense account until clarification is obtained.

A suspense account is an essential tool in the accounting process, designed to handle transactions with uncertainties or discrepancies. By temporarily holding these transactions, suspense accounts ensure that all financial activities are recorded accurately and transparently. Proper management and regular review of suspense accounts are crucial for maintaining accurate financial records and facilitating smooth audits.

However, holding a balance in the suspense account for a longer period of time without resolving it might not reflect well on the business. Thus, transactions in the suspense account should be cleared on a regular basis, and the root cause should be identified early on. Clear and consistent documentation is crucial in preventing suspense account occurrences. Organizations should establish guidelines and standards for documenting all financial transactions, including supporting evidence, such as invoices, receipts, or contracts. Well-documented transactions reduce the likelihood of errors, facilitate reconciliation processes, and expedite the resolution of any discrepancies.

When the company gets the entire payment from the customer, they will debit $50 from the suspense account and credit the receivable accounts with the same amount. When the process is finished, the accountant may finally terminate the suspense account and transfer the money to the correct account. Understanding the purpose and examples of suspense accounts highlights their importance in various industries, including banking and real estate. By using suspense accounts effectively, organizations can enhance the reliability of their financial reporting and maintain the integrity of their accounting systems. Picture a business that receives a payment from a client who fails to provide enough information to identify the nature of the payment. Instead of leaving the entire transaction unrecorded, the company may choose to place it in a suspense account temporarily.

Establishing Robust Systems and Processes

This account is used to park funds or transactions that cannot immediately be classified into the correct accounting category due to incomplete information or uncertainty. Suspense accounts are invaluable tools for maintaining clarity and accuracy in financial reporting. They provide a systematic way to ensure all transactions are properly accounted for until all the necessary information is available. A mortgage suspense account is a temporary holding area where the borrower’s payments are kept until the loan servicing company determines the allocation of funds. Funds in the suspense account may be used to cover various charges, namely property tax, homeowners’ insurance, escrow contributions, etc.

When you open an accounting suspense account, the transaction is considered in suspense. This keeps uncategorized transactions separate from categorized transactions. A suspense balance refers to the total amount of money temporarily held in a suspense account.

A suspense account can also hold information about discrepancies as you gather more data. Here are four common scenarios where suspense accounts are utilized, each presented with detailed journal entries to illustrate the proper accounting practices. Suspense accounts serve as temporary placeholders in accounting, helping to manage transactions that cannot be immediately classified or resolved. The use of a mortgage suspense account helps ensure that payments are not misapplied or remain unaccounted for while processing. It serves as a safeguard that keeps funds in a known location until all the details can be sorted out and the payments can be accurately applied to the mortgage as intended.