Uses of Suspense Account Trial Balance With Examples

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Most companies clear their suspense accounts on a monthly or quarterly basis. Sometimes, the servicer makes a mistake and 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. An accountant uses a suspense account, a temporary account in the business chart of accounts, for recording all or part of a transaction that she doesn’t know how else to code. When she identifies the correct account for the transaction, she will move it from the suspense account to the right account.

You’re putting together a trial balance

If the Suspense Account shows a debit balance, it is taken to the asset side of the Balance Sheet, whereas if it shows a credit balance, it is taken to the liability side of the Balance Sheet. The suspense account is used as a place to temporarily hold unclassified or disputed funds and expenses while a company decides where to put them permanently. This lesson will illustrate some common uses for suspense accounts with examples. A mortgage suspense account is specific to transactions concerning mortgage payments. These may be used by banks and other financial institutions that offer mortgages. The suspense account is used in this scenario when only partial payments are received.

It is considered a holding account until the funds are placed into the correct account in the general ledger. Suspense account entries are used to temporarily store uncategorized transactions. After moving the entry to the correct permanent account, close the account.

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As soon as possible, the amount in the suspense account should be moved to the proper account. Despite its mysterious connotations, “suspense” in this case simply refers to the fact that a transaction or its designation in a company’s books has been suspended temporarily, pending some further action. You purchase a fixed asset but do not receive it until it has been paid off.

Partial payments can come in many different forms, such as a deposit on a real estate transaction or an upfront payment for a service order. Once the accountant has enough information, they can reassign the transaction out of the suspense account and into the appropriate account within the general ledger. Companies come to BlackLine because their traditional manual accounting processes are not sustainable. We help them move to modern accounting by unifying their data and processes, automating repetitive work, and driving accountability through visibility. Whether you’re new to F&A or an experienced professional, sometimes you need a refresher on common finance and accounting terms and their definitions. BlackLine’s glossary provides descriptions for industry words and phrases, answers to frequently asked questions, and links to additional resources.

Ensure services revenue has been accurately recorded and related payments are reflected properly on the balance sheet. List the suspense account under “Other Assets” on your trial balance sheet. After you make corrections, close the suspense account so that it’s no longer part of the trial balance. Both suspense accounts and clearing accounts are used to temporarily record transactions, until they can be permanently assigned.

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A Purchase of Rs. 1035 was posted to a creditor’s account as Rs. 1000. Every day when you go to work or school, the first thing you have to do is find a place to park. You need somewhere to put your vehicle temporarily while you do your job or learn new things. You have to park in any spot you can find and you may never park in the same spot again! At the end of the day, you will get in your car and move it to your more permanent parking place in front of your home.

How to use suspense accounts

As the name suggests, all the transactions recorded in this account are “suspense” for the accountant. Hence, accountants need to gather more information about the nature of these transactions to move them into their correct accounts. Finally, internal bookkeeping errors, such as overstated or understated balances, duplicate entries, or incomplete or partial entries are recorded in the suspense account until the error can be adjusted.

• Or the amount might go toward reducing the principal balance of your mortgage.
• These rules generally require that loan servicers promptly credit a consumer’s account on the day a full payment is received, subject to a few exceptions.
• Close the account after moving the entry to the correct permanent account.
• For example, sender sends payment from US ACH account to a BB mobile number in Japan.

While other trial balance errors do exist (e.g., error of omission, commission, principle, original entry, reversal of entries), they do not affect the suspense account. The suspense account can have a debit or a credit balance, depending on which side the trial balance is short. A suspense account will be managed by the finance team and serve as a catch-all for unknown amounts. The purpose of a suspense account is to hold amounts that cannot be categorised, so it would not be possible for each department to have a suspense account. If you could identify the department, you would not need to place the payment in a suspense account.

If they cannot ascertain the true nature of a particular investment, then this account will be classified as a current account. In similar ways, it could also be used to park an “unclassified” liability. Suspense accounts are used by accountants in many different types of situations. Retailers are recalibrating their strategies and investing in innovative business models to drive transformation quickly, profitably, and at scale.

Suspense account example

Deposits or withdrawals are made for transactions that are yet to be completed. DebitsDebit represents either an increase in a company’s expenses or a decline in its revenue. Once the corresponding invoice has been identified and the details about the transaction are known. Stay up to date on the latest corporate and high-level product developments at BlackLine. Every executive is committed to ensuring transformational success for every customer. Unlock capacity and strengthen resilience by automating accounting.

A suspense account keeps the book of accounts organised by separating the unidentified transactions. When a business is unsure about the account in which a particular transaction has to be parked, it uses a suspense account. However, a brief consultation with the respective accountant is necessary before taking such steps. Let’s say that there are errors in the account books of ABC Ltd. as on March 31, 2022. The trial balance did not match, showing an extra credit of Rs. 7465.

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Hence, this account helped him hold this transaction in the books of accounts and prevented him from putting it under the wrong account head. It can be a repository for monetary transactions entered with invalid account numbers. If one of these conditions applies, the transaction should be directed to a suspense 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. This is because unallocated transactions get more difficult to reconcile with passing time, especially if there is insufficient documentation, and the account balance could grow uncontrollably. The bookkeeper is unable to balance the company’s trial balance, with the credit column exceeding the debit side by $500.

A suspense account cannot have a debit balance, it always shows a credit balance. One important use of a suspense account is to bring the trial balance into agreement. If the business makes a payment toward a customer, but their bank account information changes, they can place the transaction into the suspense account until it is resolved. When the business receives a payment that it does not know how to categorize, the transaction is temporarily placed in the suspense account.

The suspense account may be used when other issues occur with a payment, such as incorrect information or a technical problem with the transaction. If the payment is unclassified, meaning it does not have a specific account where it belongs, it may go into the suspense account. Let’s suppose you have been alerted that a remittance someone sent you from abroad is ready for withdrawal.

If this is the case, they might create a suspense account before they receive aid from their accountant. For example, a supplier may deliver a $1,000 invoice for services. If the person in charge is unclear which department of their company should be charged, they can temporarily store this sum in a suspense account. A suspense account is a temporary holding account to record transactions that are subsequently reallocated to other accounts.

However, they plan to quickly invest their sale in another group of investments. As such, the $500 the investor made will be put into a default suspense account via suspense account transactions. That money remains there until the investor can put it toward a new purchase. As a small business owner in Canada, you encounter many documents and terms that go along with them. Depending on how long you’ve been in business, you may or may not have come across suspense account transactions.

Classification of Suspense Accounts

This personal accountant is used temporarily for these and other similarly unclear issues. 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. Investing and brokerage suspense accounts temporarily hold investors’ funds until the money is allocated towards the purchase of new investments.

• Patriot’s online accounting software is easy to use and made for the non-accountant.
• A mortgage suspense account is specific to transactions concerning mortgage payments.
• Some banks will not apply partial payments to customer mortgage accounts because of doubt as to the proper amounts to apply to principal, interest, and escrow.
• For example, a supplier may deliver a $1,000 invoice for services.
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For example, let’s say you split your mortgage payments up and pay two payments per month rather than once a month. The servicer might place the first payment in a suspense account until the second payment is received. Once the suspense account has enough funds to make a full payment, the servicer will remove the funds from suspense and apply them to the account. It would stay there until remittance of the other partial payment.

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. A Suspense Account is a ledger account used for the temporary recording of business transactions. The necessity for a suspense account stems from the inability to identify the appropriate ledger account for the transaction to be recorded. Once you open an accounting suspense account, the transfer is put on hold. This separates uncategorized transactions from categorised transactions.