What is a Suspense Account in Financial Accounting?

A suspense account is a general ledger account where sums are temporarily recorded. When the correct account cannot be determined at the time the transaction is logged, a suspense account is utilized.

The correctness of ledger accounts is not always demonstrated by a trial balance. It is just a demonstration of the postings’ mathematical correctness. There may be inaccuracies even though the sum of the credits and debits match. Suspense accounts in the Journal Proper can be used to fix such problems.

For example: A company receives a check for $100 from a customer. The check does not have an invoice number, so the accountant does not know which account to credit. The accountant records the check in a suspense account until the invoice number is received. Once the invoice number is received, the accountant transfers the $100 from the suspense account to the accounts receivable account.

The suspense account is a useful tool for ensuring that all transactions are recorded in the accounting records, even if the details of the transaction are not yet known. It helps to keep the financial records accurate and up-to-date.

Reason to Open a Suspense Account

There are two possible justifications for opening a suspense account:

1. A bookkeeper enters an item into a suspense account while waiting for instructions because she is unsure where to post it.
2. There is a discrepancy in the trial balance. To make the trial balance agree (pending the identification and correction of the errors causing the discrepancy), a suspense account is opened with the amount of the discrepancy. This is the only instance in which a record is entered without a corresponding entry in another place.

Benefits of Suspense Account

Suspense accounts are a valuable tool in the world of accounting. They are used to record transactions that cannot be identified and allocated to any specific account. By creating a suspense account, businesses can temporarily store these transactions until they can be properly identified and allocated. This process not only helps with accuracy and organization but also offers several other benefits.

Conclusion

Suspense accounts should be used sparingly. The longer a transaction remains in a suspense account, the more likely it is that the details of the transaction will be forgotten or lost. It is important to investigate and resolve suspense account transactions as quickly as possible.