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. A suspense account is an account where you record unclassified transactions. The account temporarily holds entries while you decide how you will classify them. A suspense account can also hold information about discrepancies as you gather more data.
When you’re posting those that you do know, you’ll need to put in a balancing entry to your suspense account because there must be equal and opposite debit and credit entries on the opening balances entry screen. This balancing entry will be removed once you find out what the missing opening balances should be. A trial balance is a worksheet with totals of all accounts in the general ledger. Trial balances are usually prepared at the end of the reporting period to make sure that all credits and debits are equal. A suspense account may be added to the trial balance when there are understated or overstated balances that cannot be corrected before the end of the reporting period.
- At that point, the suspense account should achieve a balance of zero dollars.
- Let’s suppose a company receives a cash sum of $500 but it cannot figure out who the money is from or what it is for.
- For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online.
- Similarly, if a borrower pays more than they owe for a particular month—without designating how those funds should be applied—the servicer may put the extra money into a suspense account for the time being.
After an entry in the suspense account is clarified, it will be assigned permanently to the proper account. For example, an entry for a payment will be cleared from the suspense account and entered into the accounts receivable once the corresponding invoice has been identified and the details about the transaction are known. For suspense account journal entries, open a suspense account in your general ledger.
If the credits in the trial balance exceed the debits, record the difference as a debit–and vice versa–to make both columns of the trial balance report balance. 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. Transactions that are booked before an allocation is made to the appropriate cost or profit center will be recorded in the suspense account until they can be properly assigned. A partial payment occurs when a customer does not pay the full amount owed for a transaction. Partial payments can come in many different forms, such as a deposit on a real estate transaction or an upfront payment for a service order. As can be seen the debit of 1,000 is unidentified and is posted as unclassified to the suspense account in the balance sheet.
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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. In mortgage servicing, the servicer can use a suspense account to park funds temporarily if a borrower has made only a partial payment for that month. In investing, a suspense account is a type of brokerage account where a customer’s proceeds from selling an investment may be recorded until the customer uses the money to invest in something else. Customers sometimes make partial payments on monthly loan or credit installments. Partial payments will be entered into a suspense account until the full payment is received.
Example #4 – Trial Balance
You might receive a partial payment from a customer and be unsure about which invoice they’re paying. Hold the partial payment in a suspense account until you contact the customer. When you find out the invoice, close the suspense account and move the amount to the correct account.
How long should transactions remain in the suspense account?
When you get the information you need, reverse the suspense account entry and make an entry in the permanent account. This closes out the suspense account and posts the transaction to the correct account. There are several errors that may be revealed by the trial balance which involve the suspense account.
Suspense accounts are used by accountants in many different types of situations. For the past 52 years, Harold Averkamp (CPA, MBA) hasworked as an accounting supervisor, manager, consultant, university instructor, and components of the income statement innovator in teaching accounting online. For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. Deposits or withdrawals are made for transactions that are yet to be completed.
Example #1: Unknown Invoice
The suspense account can hold the difference that led to the trial balance not balancing until the discrepancy is rectified. 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. However, all transactions require complete and accurate information before they can be entered into the financial records.
If you really don’t know where to put a particular transaction in your accounts, the suspense account is your point of last resort. A customer paid an outstanding $1,000 invoice in two partial payments of $500. 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. When the trial balance shows credits exceeding debits, the difference should be recorded as a debit to reflect the temporary nature of those funds. Lenders and loan servicers may also refer to suspense accounts as “unapplied funds accounts.” An accountant was instructed to record a significant number of journal entries written by the controller of a large company.
Missing or incorrect details can derail your bookkeeping efforts, but you need to record every transaction. Use a suspense account when you’re not sure where to record general ledger entries. A suspense account is a short-term holding bay in your business’s general ledger.
A suspense account is a general ledger account in which amounts are temporarily recorded. The suspense account is used because the appropriate general ledger account could not be determined at the time that the transaction was recorded. 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. 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. You might be unsure about which department of your business to charge, so you place the amount leasing vs financing in a suspense account. For efficiency purposes, it is also helpful to track and analyze the entries over time to minimize the reoccurrence of any transactions that cause frequent unnecessary postings into the suspense account. In any case, every effort should be made to eliminate all unidentified transactions held in the suspense account by the end of the fiscal year, otherwise the annual financial statements will be inaccurate. Even if there is no timeline set by regulatory authorities for the clear-out process, businesses routinely carry out monthly or quarterly suspense account reconciliations.
While other trial balance errors do exist (e.g., error of omission, commission, principle, original entry, reversal of entries), they do not affect the suspense account. The suspense account can have a debit or a credit balance, depending on which side the trial balance is short. Because the suspense account reflects transactions that are not fully documented or properly assigned, it can be hard to know on which side of the ledger they belong. In these situations, the transaction will be entered into the suspense account until more information, such as an invoice, is gathered and the transaction can be correctly assigned.