Suspense Account Definition, What is Suspense Account, Advantages of Suspense Account, and Latest News

Suspense accounts and error correction are popular topics for examiners because they test candidates’ understanding of bookkeeping principles so well. A suspense account is a temporary holding account for a bookkeeping entry that will end up somewhere else once the final and correct account is determined. Generally, it’s because the appropriate account could not be determined at the time the transaction needed to be recorded. It is used only because a proper account for a particular transaction couldn’t be determined at the time when the transaction was recorded.

• As can be seen the original entry to the suspense accounts is reversed, so the balance on the account is zero.
• It is a technique used by accountants to maintain the integrity of financial records and ensure accurate financial reporting.
• After you make the final payment and receive the item, close the suspense account and open a separate asset account.
• Keep track of all of your transactions, even from your smartphone with online accounting & invoicing software like Debitoor.
• In this case, the accountant will pass the initial entry in the suspense account till he identifies the correct open invoice.
• In another scenario, a customer might make a payment but fail to specify which of several outstanding invoices they intended to pay off with those funds.

Hold the partial payment in a suspense account until you contact the customer. When you find out the invoice, close the suspense account suspense account and move the amount to the correct account. Eventually, you allocate entries in the suspense account to a permanent account.

Investing Suspense Accounts

It provides a mechanism to track and identify transactions or amounts that need further clarification or investigation. Additionally, the use of suspense allows for the timely preparation of financial statements, ensuring that they are prepared in accordance with the appropriate accounting standards. The errors which do not involve a suspense account will, when discovered, be corrected by means https://www.bookstime.com/articles/accounting-and-bookkeeping-services of a journal entry between the ledger accounts affected. The errors which do involve a suspense account will also require journal entries to correct them, but one side of the journal entry will be to the suspense account opened for the difference in the accounting records. The accountant will then credit the suspense account with $50 and debit the cash account with the same transaction amount.

It serves as a temporary placeholder for transactions or amounts that require further clarification or investigation before they can be properly recorded. The use of suspense enables accountants to proceed with the bookkeeping process while ensuring that transactions are not omitted or misclassified. By utilizing suspense, accountants can ensure the accuracy and reliability of financial statements and maintain the overall efficiency of the bookkeeping process. Another purpose of suspense in accounting is to highlight transactions or amounts that need further investigation or clarification. The suspense account acts as a reminder that there is an unresolved issue that needs to be resolved. It prompts the accountant to actively seek the necessary information or clarification to properly allocate the transaction to the appropriate account.