Suspense Account Meaning Examples How To Use

Suspense Account Meaning

Sometimes, we don’t have all the necessary information for a particular transaction. Still, we need to record every transaction to keep our ledger books up to date, and this is where the suspense account comes in handy, as we are not sure where to record general ledgerGeneral LedgerA general ledger is an accounting record that compiles every financial transaction of a firm to provide accurate entries for financial statements. The double-entry bookkeeping requires the balance sheet to ensure that the sum of its debit side is equal to the credit side total. A general ledger helps to achieve this goal by compiling journal entries and allowing accounting calculations. read more entries.

As the name suggests, all the transactions recorded in this account are “suspense” for the accountant. Hence, we need to gather more information about the nature of these transactions to move them into their correct accounts.It is vital to understand that all the transactions are temporarily recorded in this account. Although there is no standard amount of time set by regulatory authorities to clear this account, we should move all the transactions into their correct accounts as soon as we can ascertain their exact nature.This account is not meant to manipulate the books of accounts. Instead, it is used to give some leeway to the accountant to find the true nature of some transactions to make the ledger books more robust.Depending on the nature of the transaction, it can be either an asset or a liabilityAn Asset Or A LiabilityWhat makes Assets & Liabilities different is that while the former refers to anything that a Company owns to gain long-term economic benefits, the latter refers to anything that the Company owes to other parties. read more. If we cannot ascertain the true nature of a particular investment, then this account will be classified as a current account. In similar ways, it could also be used to park an “unclassified” liability.

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Suspense Account Examples

Example 1

An accountant was asked to record a few journal entries written by the finance head of a large corporation. There was one transaction whose nature could not be ascertained at recording. The accountant recorded the “unclassified” amount in the general ledger suspense account to complete the assignment by the deadline.

He will move the amount from the Suspense account to the appropriate account as soon as he gets more information about the nature of the transaction. Hence this account helped him to keep the transaction in books of accounts and, at the same time, deter him from putting it under the wrong category.

Example 2

When you receive cash of $100 from the client but are not sure about the transaction against which he made this payment, then you can 1st pass this entry, and once you can determine that then, you can reverse this transaction in the following manner-

How are Suspense Accounts used in the Real World?

#1 – When preparing a trial balance

A trial balance is the closing balanceTrial Balance Is The Closing BalanceTrial Balance is the report of accounting in which ending balances of a different general ledger are presented into the debit/credit column as per their balances where debit amounts are listed on the debit column, and credit amounts are listed on the credit column. The total of both should be equal.read more of an account that we calculate at the end of the accounting period. When the two sides of the trial balance don’t match, we hold the difference in a suspense account until we correct it. If the debits in the trial balance are larger than credits, we record the difference as a credit. If the credits are larger than debitsDebitsDebit represents either an increase in a company’s expenses or a decline in its revenue. read more, we record the difference as a debit. Then, we close the account after making the necessary adjustments so that it’s no longer part of the trial balance.

#2 – Uncertainty regarding the payment maker

When we cannot match the payment from a particular client with the account receivables balance, we can park that payment in the suspense account to match the client’s outstanding dues with the payment and cross-verify it with the client.

#3 – Uncertainty regarding the classification of the transaction

When the business is unsure about the account in which they need to park a particular transaction, it is best to put the transaction in a suspense account and consult with your accountant before making any decision.

Conclusion

It helps you keep your accounting books in an organized manner. It helps in ensuring thatIt helps you keep your accounting books in an organized manner. It helps ensure that all the transactions are recorded under the correct heads. It improves the quality of book-keepingBook-keepingBookkeeping is the day-to-day documentation of a company’s financial transactions. These transactions include purchases, sales, receipts, and payments.read more and proper representation of all the transactions. It is like a temporary shelf where all the “miscellaneous” items can be parked until their actual nature can be ascertained. When we record uncertain transactions in permanent accounts, it might create balancing issues. It helps us to avoid recording transactions in the wrong accounts. But in the end, we should make sure to reduce the suspense account balance to zero and transfer all the entries in their respective accounts to better represent our books.