What is a suspense account?
A suspense account is a temporary holding account used to record and track errors and uncertainties in the ledger. When the bookkeeper adds up the Trial Balance and finds that the columns do not balance, they will insert a suspense account to record the discrepancies. The accountant will then investigate the problematic transactions and transfer the relevant entries out of the suspense account and into the appropriate account. This process of resolving the errors and balancing the books is known as “Zeroing” the suspense account. Suspense accounts are typically classified as current assets or current liabilities and can be either credits or debits, depending on what is needed to balance the Trial Balance.
When to use a suspense account?
Situations where a suspense account may be needed are:
-
When preparing the trial balance, the debits and credits do not match. The difference can be posted to a suspense account until the error is found and corrected.
-
When receiving a partial payment from a customer and not knowing which invoice it relates to. The payment can be recorded in the suspense account until the customer confirms the invoice number or the payment amount matches an outstanding invoice.
-
When receiving a payment from an unknown customer and not being able to identify them from the record. The payment can be recorded in the suspense account until the customer is contacted and their details are verified.
A suspense account is only a temporary solution and should be cleared as soon as possible by adjusting the appropriate account. Leaving transactions in the suspense account for too long can lead to inaccurate financial statements and audit issues