Suspense Accounts in Accounting: Purpose and Management

These temporary transactions are “suspended” or held in suspense until they can be identified with a specific ledger account. Explore the strategic role of suspense accounts in accounting, their resolution, and how they ensure accurate financial reporting. When you receive the full payment from the customer, debit $50 to the suspense account. This closes the suspense account and moves the payment to the correct account. The use of suspense accounts is a useful tool for businesses and organizations to help keep their books balanced. Suspense accounts provide an easy way of managing funds and transactions before they are ready for permanent entry into an organization’s books, helping to ensure accuracy and completeness in record keeping.

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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. In summary, a suspense account is a temporary holding account used to record transactions that are not yet fully classified or are in a state of uncertainty. The purpose of a suspense account is to temporarily hold these transactions until they can be properly classified and what is a suspense account used for in accounting recorded in the appropriate accounts.

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• This closes the suspense account and moves the payment to the correct account.
• A suspense account cannot have a debit balance, it always shows a credit balance.
• The use of a mortgage suspense account helps ensure that payments are not misapplied or remain unaccounted for while processing.
• Generally, it’s because the appropriate account could not be determined at the time the transaction needed to be recorded.

Process of Accounting

The trial balance is the closing balance of a given account, calculated at the end of a certain reporting period. However, once information is obtained from the customer regarding the invoice number they have paid, the suspense is reversed, and receivable is credited with the following journal entry. 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.

Acquiring fixed assets on payment plans

This type of account temporarily holds funds or securities until the correct placement assets = liabilities + equity of the transactions can be determined. Once the nature of a transaction is clarified, the accountant can then move the funds from the suspense account to the appropriate permanent account. This could be any number of specific accounts, such as accounts receivable, revenue, or a liability account, depending on the transaction’s characteristics.

If no matches are found then it may be necessary to contact someone within the organization who is familiar with the transaction in order to identify its origin and allocate it accordingly. Another way of dealing with a Suspense Account is through automated reconciliations. Deposits or withdrawals are made for transactions that are yet to be completed. Ask a question about your financial situation providing as much detail as possible. 11 Financial is a registered investment adviser located in Lufkin, Texas. 11 Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements.

All such information is provided https://www.bookstime.com/ solely for convenience purposes only and all users thereof should be guided accordingly. Suspense is frequently used in the books of accounting in the following circumstances. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career. Double Entry Bookkeeping is here to provide you with free online information to help you learn and understand bookkeeping and introductory accounting. For the past 52 years, Harold Averkamp (CPA, MBA) hasworked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online.

Another instance in which having a suspense account comes in handy is when a trial balance is out of balance, meaning the debit and credit columns do not match. If an expense is incurred, the benefit of which is received by more than one account, such an expense can temporarily be placed in a suspense account. Later, the entries can be transferred to the relevant accounts at the appropriate ratio. One important use of a suspense account is to bring the trial balance into agreement. 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.