What Is a Suspense Account? How It Works, Types, and Example
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A customer paid an outstanding $1,000 invoice in two partial payments of $500. At times, all the required details for a particular transaction are not available but it still needs to be recorded in order to keep the accounting books updated. In short, a suspense account is the point of last resort when you need a short-term holding bay for financial items that will end up somewhere else once their final resting place is decided.
Your vs. You’re: How to Use Them Correctly
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.
A suspense account is used to temporarily record transactions that lack the normal, detailed information that accountants require to make proper journal entries into the business’s accounting records. Regardless of the issues in question, suspense accounts are cleared out once the problem is addressed, at which time the funds are promptly re-shuffled to their correctly designated accounts. At that point, the suspense account should achieve a balance of zero suspense account dollars. While there is no definitive timetable for conducting a clearing-out process, many businesses try to regularly accomplish this on a monthly or quarterly basis. Regular reviews and monitoring of the accounting system’s performance are essential to identify potential system errors or glitches promptly. This includes conducting periodic system checks, verifying data integrity, monitoring batch processing, and implementing appropriate system controls.
Why are these accounts so important?
BlackLine solutions address the traditional manual processes that are performed by accountants outside the ERP, often in spreadsheets. Our solutions complement SAP software as part of an end-to-end offering for Finance & Accounting. When you record uncertain transactions in permanent accounts, you might have incorrect balances. Suspense accounts help you avoid recording transactions in the wrong accounts. You also avoid failing to record a transaction because of missing information.
Likewise, if the trial balance shows debits are larger than credits, the difference should be entered as a credit because the amount will be cleared once the difference has been reconciled. Once the accountant has enough information, they can reassign the transaction out of the suspense account and into the appropriate account within the general ledger. However, all transactions require complete and accurate information before they can be entered into the financial records. BlackLine partners with top global Business Process Outsourcers and equips them with solutions to better serve their clients and achieve market-leading automation, efficiencies, and risk control. By outsourcing, businesses can achieve stronger compliance, gain a deeper level of industry knowledge, and grow without unnecessary costs.
Meaning of Suspense Account:
Suspense accounts are also used by lenders, such as mortgage providers, when borrowers accidentally or intentionally break up their regular payment obligations. There is an uncertainty regarding transaction classification at the time of its entry into an accounting system. For example, payments may be received with invalid or unclear account information. Other details may also be unclear, such as the amount of the transaction or the payee. Explore the future of accounting over a cup of coffee with our curated collection of white papers and ebooks written to help you consider how you will transform your people, process, and technology.
To know more about suspense account in QuickBooks, stick through this guide till the end. If there is credit balance in suspense a/c, it is shown on asset side of balance sheet. Regular training sessions and updates on accounting standards and practices contribute to the overall preventive measures against suspense account occurrences. The suspense account will be written off from the books of account after all of the errors have been detected and corrected. Another type of liability suspense account, if the company or employees have previously spent money and you are unsure where to attribute the cash, it would reside here.
When the controller is available, the accountant will get clarification and will move the amount from the Suspense account to the appropriate account. Let’s say that the borrower’s payment was increased to $975 per month for this example. The payment is increased in order to recoup the extra money the mortgage company paid for real estate taxes and in order to collect enough money for taxes the following year. A suspense account is also known as a difference in book account or an error account. The purpose of the balance sheet is to reveal the financial status of a business as of a specific point in time. Businesses may decide to clear their suspense accounts quarterly, while smaller companies may do so more often.
When you open an accounting suspense account, the transaction is considered in suspense. This keeps uncategorized transactions separate from categorized transactions. The account temporarily holds entries while you decide how you will classify them.
What are Suspense Accounts: Definition and Examples
Data errors can occur during the transmission, processing, or recording of financial information. These errors can result in incorrect or incomplete journal entries that do not align with the intended account classification. A suspense account can be used to hold such entries until the error can be identified and rectified.