What Is a Suspense Account? Examples and How to Use Xero accounting

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. A suspense account helps organizations like insurance companies, mortgage service companies, etc run smoothly because many of their customers don’t make payments on the due dates. It’s important to know about suspense accounts because sometimes you will need to recheck some transactions when in the account statement the debit and credit sides don’t match. The errors which do not involve a suspense account will, when discovered, be corrected by means of a journal entry between the ledger accounts affected. 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.

Accordingly, there should be a daily measurement of the balance in the suspense account, which the controller uses as the trigger for ongoing investigations. Finally, all suspense account items should be researched and eliminated by the end of the fiscal year. When the right account is determined or the error is rectified, the amount shall be moved from the suspense account to its proper account. Patriot’s online accounting software is easy to use and made for the non-accountant.

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Debitoor also has an ‘Other Income’ option, where you can place income that cannot be matched to an invoice. Are you looking for the latest trends and insights to fuel your business strategy? Ask a question about your financial situation providing as much detail as possible. Our team of suspense account reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice.

• A suspense account cannot have a debit balance, it always shows a credit balance.
• This compensation may impact how and where products appear on this site (including, for example, the order in which they appear), with exception for mortgage and home lending related products.
• Partial payments will be entered into a suspense account until the full payment is received.
• In this case, the accountant will pass the initial entry in the suspense account till he identifies the correct open invoice.
• Suspense accounts on balance sheets are not desirable since they might make it difficult to balance the books appropriately.
• If you don’t have an account for a specific expense then you may need to create a new one within your chart of accounts.

Use a suspense account when you buy a fixed asset on a payment plan but do not receive it until you fully pay it off. After you make the final payment and receive the item, close the suspense account and open a separate asset account. If the credits in the trial balance are larger than debits, record the difference as a debit. In the business world generally, a suspense account is a section of a company’s financial books where it can record ambiguous entries that need further analysis to determine their proper classification. For an accountant to show a suspense account on balance sheet documents is more direct than it seems, because it isn’t much different from other accounts.

Question 2

To close the suspense account, credit the suspense account and debit the supplies account for the purchasing department. 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. If you don’t know who made the payment, look at your outstanding customer invoices and find which one matches the payment amount. Contact the customer to verify that it’s their payment and the right invoice. A general ledger is where a business records its assets and liabilities on an ongoing basis, broken into separate categories or accounts.

Businesses also use a suspense account to record transactions when there are delays between the receipt of money and the proper assignment in the ledger. For example, money may be transferred to a bank but not deposited into an account, or when money is received by a customer before a policy or contract is written. Sometimes, the servicer makes a mistake and https://www.bookstime.com/ places payments into a suspense account without proper justification. For example, say you send in your October payment of $1,100 to your servicer, but the servicer incorrectly records the payment as $100. Because this payment is not a full payment in the eyes of the servicer, it places this amount in a suspense account, and nothing is applied to the loan.

When Should You Create and Use a Suspense Account?

Suspense accounts are used for assets or liabilities that require further clarification before they can be assigned a permanent place in the ledger. It’s important to keep unidentified amounts in a separate account in order to stay organised and identify them later more easily. These unmatched amounts should not be left in amongst your already-identified transactions.

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• The servicer must also explain what the borrower needs to do in order to have that money applied to their mortgage payment.
• If you could identify the department, you would not need to place the payment in a suspense account.
• The difference amount is temporarily recorded in a suspense a/c and should be cleared at some point as it possesses a control risk.
• Are you looking for the latest trends and insights to fuel your business strategy?
• When you get the information you need, reverse the suspense account entry and make an entry in the permanent account.