Suspense Accounts: Definition, Explanation, Example

The bookkeeper is unsure whether to debit the office machines account or the electronic appliances account. Additionally, it may be necessary to contact customers or vendors for more detailed information about their payments or transactions. Each week he purchases some of the materials needed to manufacture the bakery’s products and he pays for them with the company’s debit card. Last week he purchased a new refrigerator for $300 but due to his busy schedule he failed to send the receipt of the transaction to his accountant. As you can see, there is now a nil balance carried forward in the suspense account.

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Lastly, incomplete or inaccurate information can happen when a customer provides incorrect account numbers for payments. For investors, suspense accounts allow them to hold funds from selling an investment until they are reinvested in another one. This provides flexibility and convenience for those who want to switch their portfolios quickly without having to wait for the sale of one investment before buying another. https://www.bookstime.com/ Suspense accounts can provide a wide range of benefits to businesses, investors, and mortgage servicers alike.

When is a suspense account to be used in the books of accounting?

• The reallocation is typically accompanied by a journal entry that provides a clear audit trail from the suspense account to the final destination in the ledger.
• A mortgage suspense account is a specific type of suspense account used in the world of home loans and mortgages.
• For investors, suspense accounts allow them to hold funds from selling an investment until they are reinvested in another one.
• The following entry can be posted in the accounting system to record the cash in such a situation.
• To record this, Michelle processed a journal entry to remove both the $400 trade payable and $500 trade receivable and posted the difference to the suspense account.

He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University. This separation from the ‘main’ accounts is important for ensuring that the financial statements reflect a true and reliable representation of a company’s financial position. In this blog, we will demystify what suspense accounts are, explore different types, and dive into examples that bring these concepts to life.

• Once you receive the full payment from the customer, you’re going to debit the suspense account for $100, then credit your Accounts Receivable for the same amount.
• Whilst performing a bank reconciliation, Michelle discovered a payment in the bank statement for $120 which was made on 1 September 20X8.
• The account temporarily holds entries while you decide how you will classify them.
• However, some companies have a periodic system to check and resolve the suspense accounts.
• When you find out the invoice, close the suspense account and move the amount to the correct account.

When To Use Suspense Accounts?

This section will explore the advantages that suspense accounts can offer in each context. The Unidentified Receipts Account holds funds that have been received but the source is unknown. This can happen if a customer’s account number is missing from a payment made to the company.

When Online Accounting an accounting error is identified, such as a misclassification of expenses, the incorrect entry would be moved to a suspense account while the error is investigated and then ultimately corrected. 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.

• Subsequently when the business determines the transaction classification it transfers the amount from the suspense account to the correct account.
• 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.
• Suspense account comes under all types of accounts like personal account, real account, and nominal account.
• A suspense account is a temporary account used to record doubtful transactions and it is an account that comes under all types of accounts like personal account, real account, and nominal account.
• Another way of dealing with a Suspense Account is through automated reconciliations.

When you make a payment on your mortgage, every penny of that payment usually goes toward paying off interest, principal (the original amount borrowed), and possibly escrow amounts for taxes and insurance. But sometimes, if the payment isn’t sufficient to cover all dues, or if there’s confusion about the payment amount,, the money might go into a mortgage suspense account. A mortgage suspense account is a specific type of suspense account used in the world of home loans and mortgages. It is used exclusively for mortgage payments that cannot be fully applied to a loan account immediately. 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.

Doubtful Transactions:

Let’s suppose you have been alerted that a remittance someone sent you from abroad is ready for withdrawal. Until you actually make the withdrawal from the agent or financial institution, the remittance money may be stored in their suspense account. 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 the books of accounts and, at the same time, deter him from putting it under the wrong category.

Transactions recorded in a suspense can relate to both debits and credits. what is a suspense account used for in accounting Suspense accounts serve as a placeholder until the missing or uncertain details are resolved, when they would be moved back into the general ledger. A customer paid an outstanding $1,000 invoice in two partial payments of $500. 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. No, unlike mortgage escrow accounts, the money in a mortgage suspense account doesn’t earn any interest for the borrower. A general ledger is where a business records its assets and liabilities on an ongoing basis, broken into separate categories or accounts.