nature of suspense account: Suspense Account Definition, What is Suspense Account, and How Suspense Account works?

journal entry

An account where companies deposit and withdraw money for transactions that haven’t been completed yet. These accounts help companies keep track of any ongoing transactions on their balance sheets. The difference in trial balance is temporarily transferred to suspense a/c. A suspense account is used to record doubtful receipts and payments.

These transactions include purchases, sales, receipts, and payments. Some jurisdictions have rules and regulations regarding suspense accounts because they are considered a control risk. The unclassified transactions temporarily “parked” in this account are a “suspense” that we need to investigate and relocate into their correct accounts accordingly. 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.

Use a Suspense Account for Questionable Transactions

If you have taken over the accounting for a company and they have a suspense account it is very important to make sure these amounts are explained and identified and finally removed and coded to the correct account. If you are unsure about where to code a transaction to then it can be coded to the suspense account until your bookkeeper or accountant can be reached for advice. In the case of one-sided errors, if they are to be rectified through journal entries, the suspense account can be used for the required debit or credit depending upon the nature of error. Suspense accounts in a company’s general ledger typically contain entries where there are uncertainties or discrepancies that need to be resolved. In another scenario, a customer might make a payment but fail to specify which of several outstanding invoices they intended to pay off with those funds. You may get partial payments from customers and wonder whether you should invoice it or not.


Online accounting and invoicing software today provides you with the means to manage your income and expenditures quickly, from anywhere. Automatic bank reconciliation will help you suit your payments in a moment when it comes to the transactions. A suspense account gives you a temporary space for recording unambiguous transactions. 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.

Example #1: Receiving a partial payment

You eventually allocate the from the suspense account to more permanent accounts. Don’t worry about how long that takes, as there are no standards on how long you have to clear out your suspense account. Businesses generally clear out the account on either a monthly or quarterly basis.

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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. Eventually, you allocate entries in the suspense account to a permanent account. There is no standard amount of time for clearing out a suspense account. Most businesses clear out their suspense accounts monthly or quarterly. In accounting for small business, most suspense accounts are cleared out on a regular basis.

When the credit side balance is larger than the debit balance, the difference is recorded as debit. If the debit side balance is larger than the credit side, the difference is registered as a credit. A suspense account is an account in the general ledger used to temporarily store transactions that require further analysis and rechecking before a permanent version can be made in the record books.

When the debits side are larger, the difference will be shown in credit side. If you have too much credit compared to debits, then you record the difference as a debit on the account. If the debts are higher, then register the difference as a credit instead. It can be a repository for monetary transactions entered with invalid account numbers.

Patriot’s online accounting software is easy to use and made for the non-accountant. How does the ERP system know which general ledger accounts to credit and debit b… Suspense Account is a temporary account that is opened to identify and rectify a difference in a trial balance.

The estimated profit for the entire year is proportioned till the date of retirement/death of the partner and their share of the profit is settled in cash, loan, or their current account. As stated above these financial statements are prepared at the end of an accounting period. In the case of the retirement or death of a partner in the middle of the year or on any given date, it shall be a tedious task for an entity to distribute the profits. A suspense account is also known as a difference in book account or an error account.

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For suspense account journal entries, open a suspense account in your general ledger. The format of suspense account entries will be either a credit or debit. Also, enter the same amount with an opposite entry in another account. The purpose of suspense account entries is to temporarily hold uncategorized transactions. Close the account after moving the entry to the correct permanent account. You might receive a partial payment from a customer and be unsure about which invoice they’re paying.

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Cash Rs.390 received from Geetha, though entered in the cashbook had not been posted to Geetha’s a/c. When a transaction is made, but it is not clear whether the transaction occurred or for what it is intended , it is called a suspense account. Alternatively, a suspense account is used to separate the amount before it can be found and put in the appropriate account. Emilie is a Certified Accountant and Banker with Master’s in Business and 15 years of experience in finance and accounting from large corporates and banks, as well as fast-growing start-ups. A customer paid $1,000 in cash without specifying which invoice the payment relates to.

A suspense account is used when the proper account cannot be determined at the time the transaction is recorded. When the proper account is determined, the amount will be moved from the suspense account to the proper account. It can also be used when there is a difference between the debit and credit side of a closing or trial balance, as a holding area until the reason for error is located and corrected. Suspense accounts act as an important addition to many business organizations. They help these organizations in rechecking their transactions when the debit and credit sides of their account statement don’t match each other.

Utility of Suspense Account:

When nature of suspense accounts and credits don’t match, hold the difference in a suspense account until you correct it. A suspense account has a general ledger that you can use for the temporary recording of business transactions. The need for a suspense account arises when you are unable to identify the appropriate ledger account for the transactions which have been recorded.

  • These transactions can be moved to the suspense account till you contact the client and identify the correct invoice.
  • Accruals are revenues earned or expenses incurred which impact a company’s net income, although cash has not yet exchanged hands.
  • To close the suspense account, credit the suspense account and debit the supplies account for the purchasing department.
  • A suspense account is an account in the general ledger used to temporarily store transactions that require further analysis and rechecking before a permanent version can be made in the record books.

The suspense account is listed on the trial balance under the Other Assets heading. It remains there until the reasons for the imbalance are discovered and corrected. If your trial balance debits are larger than the credits, the difference is recorded in the suspense account as a credit. An entity prepares a profit and loss suspense account when either the partner is retired or in case of the death of a partner at any time before the end of the reporting period. It is a temporary account created to record the estimated profit for the current financial year during the ‘Reconstitution of the Partnership firm’. Sometimes you may got full payment from your customers but you unsure who paid to your account.

What is nature of suspense account?

A customer paid an outstanding $1,000 invoice in two partial payments of $500. 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 investing, suspense accounts are used by brokerage firms to hold clients’ money until it can be reinvested. You later bill the supplies to account for the purchasing department.

business owners

Accruals are revenues earned or expenses incurred which impact a company’s net income, although cash has not yet exchanged hands. Andrew Bloomenthal has 20+ years of editorial experience as a financial journalist and as a financial services marketing writer. Get up and running with free payroll setup, and enjoy free expert support. Rs.400 paid to Mehta against our acceptance was debited to Mehta’s a/c. Bills received from Raman for Rs.500 passed through Bills Payables Book. Rs.760 paid for repairing machinery had been debited to Machinery a/c.

If you do not know who made the payment, review the open invoices to try to match up the payment. Before posting the payment, call your customer to verify the payment is correct. If you cannot identify the customer, hold the payment in suspense until a customer comes forward to claim the payment. A suspense account is an account used temporarily to carry doubtful entries and discrepancies pending their analysis and permanent classification. Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries.

ClearTax serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India. Most accounting systems include suspense account in their account table, but this is something you should avoid using when other choices exist. If there is no account for a specific cost, then the user needs to build a new one within the chart of accounts. When payment is received with invalid account information, you should transfer the payment to a suspense account till you solve the issue. This account helps you keep the account books organized by separating the unidentified transactions. Book-keepingBookkeeping is the day-to-day documentation of a company’s financial transactions.

In similar ways, it could also be used to park an “unclassified” liability. 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. An accounting error is an error in an accounting entry that was not intentional, and when spotted is immediately fixed. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.

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