What is a Suspense Account And Why is it Important?
When customer withdrawal is completed, the money moves from the suspense account to the account of the agent who facilitated the cash withdrawal. When the trial balance shows credits exceeding debits, the difference should be recorded as a debit to reflect the temporary nature of those funds. An incomplete transaction should neither be overlooked nor entered improperly.
It can be a repository for monetary transactions (cash receipts, cash disbursements and journal entries) entered with invalid account numbers. If one of these conditions applies, the transaction should be directed to a suspense account. Therefore, it is vital to have a process in place to clear out the suspense account on regular basis so that all of the suspense account entries are moved into their designated accounts to zero out the suspense balance. 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.
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You might be unsure about which department of your business to charge, so you place the amount in a suspense account. If it’s an asset in question, the suspense account is a current asset because it holds payments related to accounts receivable. A suspense account could also be a liability if it holds accounts payables that you don’t know how to classify.
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Company Information
The payment relates to IT support services which Michelle will make use of from 1 September 20X8 to 31 August 20X9. A suspense account is a general ledger account in which amounts are temporarily recorded. The suspense account is used because the appropriate general ledger account could not be determined at the time that the transaction was recorded.
The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. If you’d prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card. Have questions about setting up a suspense account, or any other type of account? Let’s suppose you receive a payment from an unknown entity; or the sender is known but you are not sure which invoice they are paying for.
Why is a suspense account important?
It is worth mentioning that thereafter, as and when the errors get detected, the amount is transferred from Suspense Account to the respective account. In case of disagreement of total of trial balance, the accountant puts the difference https://www.bookstime.com/ on the shorter side of the trial balance as ‘Suspense Account’ and proceeds for preparation of final accounts. In this sense, disagreement of total of trial balance does not hamper the preparation of final accounts.
