What Is a Suspense Account? How It Works, Types, and Example

what is a suspense account used for

The suspense account is situated on the general ledger and is used to temporarily store specific transaction amounts. Having said that, any sums recorded in this account will ultimately be transferred to another permanent account. A suspense account is a temporary holding account to record transactions that are subsequently reallocated to other accounts. However, if the clearing of suspense accounts is not appropriately monitored and managed, there can be a risk of erroneous financial results and fraudulent activities. There are several best practices that can be applied to the use of a suspense account. First, regularly review the items in the account, with the objective of shifting transactions into their appropriate accounts as soon as possible.

what is a suspense account used for

You will need to do a proper investigation to determine the correct ledger account and where the amount should be moved or added. When you are looking to invest money, you can transfer your funds to a suspense account until you decide where to invest that capital. 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. It’s an account where you can make ambiguous entries until you find where those funds came from or receive full payment from a client. Generally, depending on the law, a mortgage servicer can credit a partial payment to your account, return the payment to you, or put it in a suspense account.

Company Information

After an entry in the suspense account is clarified, it will be assigned permanently to the proper account. Suspense accounts are typically helpful when a company is researching the nature of the transactions and recording it in its books. Firstly, it helps you check when the amount of a transaction is subject to a legal dispute.

  • 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.
  • “A control account like this would typically sit within your trial balance. You would look to clear it down at the end of each accounting period you report on, be it monthly, quarterly, or annually.”
  • When the controller is available, the accountant will get clarification and will move the amount from the Suspense account to the appropriate account.
  • You can transfer the amount to a suspense account until you figure out which invoice has been cleared.
  • Someone on our team will connect you with a financial professional in our network holding the correct designation and expertise.

If you get a payment, but you don’t know who has sent it, you may need to place the amount in a suspense account. Once you have checked invoices and other correspondence and confirmed with the client or customer, you can then move the amount to the appropriate account. All suspense account items should be eliminated by the end of the fiscal year.

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When you make a full monthly mortgage payment to your loan servicer, it uses part of the payment to reduce the principal balance and some to pay interest. If your loan is suspense account escrowed for taxes and insurance, part of the payment goes into an escrow account. A supplier delivers an invoice of $4500 of services, which is payable in 15 days.

what is a suspense account used for

Today, online accounting and invoicing software like Debitoor gives you the tools to easily manage your income and expenses, from anywhere. When it comes to your transactions, automatic bank reconciliation https://www.bookstime.com/articles/how-to-invoice-as-a-freelancer can help you match your payments in an instant. Suspense accounts and error correction are popular topics for examiners because they test candidates’ understanding of bookkeeping principles so well.

When to use a suspense account

On the other hand, if the debit balance is more, then the balance is credited. A suspense account is a general ledger that a company uses for recording unclassified transactions. This type of account is used because, at times, an accountant cannot determine the most appropriate account heads in a general ledger to enter certain transactions. The most important point to understand is that transactions are recorded in the suspense account only temporarily and need to be relocated to their correct permanent accounts as soon as possible.






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