What are Suspense Accounts: Definition and Examples

For example, sender sends payment from US ACH account to a BB mobile number in Japan. The customer receives an alert on their mobile to withdraw this money from a BB agent. Until they withdraw, the remittance stays in a suspense account, earning the financial institute or the BB enabler float/interest on that money. When customer withdrawal is completed, the money moves from the suspense account to the account of the agent who facilitated the cash withdrawal. Regularly review the items in a suspense account, with the objective of shifting transactions into their appropriate accounts as soon as possible. Once the cause of the discrepancy is identified or the correct classification is determined, the suspense account must be cleared.

It provides a buffer that safeguards both the investor’s assets and the brokerage firm’s integrity until the proper allocations can be made. A general ledger is often the part of your financial records where your assets and liabilities are recorded on an ongoing basis. Suspense accounts are often used for assets or liabilities and may require further clarification to be adjusted or added where they belong. These kinds of scenarios are common in large corporations, where multiple incoming payments are the daily norm. These payments may often lack specific details, making it hard for them to be accurately recorded. However, once that error has been credited and you receive your payment, the entry is moved from the suspense account into the designated account.

Recording and Reclassification

Let’s say you receive money from a customer called John for delivering him goods without an invoice. Journal entry to close the suspense item and charge the expense to the correct department. He is a credit blogger for Credit Card Insider, CreditSesame, Mint, and the National Foundation for Credit Counseling. John is twice Fair Credit Reporting Act certified by the credit reporting industry’s trade association and has been an expert witness in over 140 cases involving credit issues.

When the payment is finally made and you receive the asset then you can close your suspense account. If it is the asset in question then the suspense account is considered as a current asset because it keeps the payment that is related to the accounts receivable. 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.

The suspense account is built-in, allowing you to effectively manage all transactions, even if they have not yet been categorised.
This allows accountants to continuously monitor and adjust the entries without affecting the integrity of the overall records.
However, due to the accounting year’s end, the preparation of the trading and profit and loss account, as well as the balance sheet, cannot be delayed.
A general ledger is where a business records its assets and liabilities on an ongoing basis, broken into separate categories or accounts.
For instance, if someone makes a deposit and uses a nonexistent account number, the money will be placed into a suspense account until the correct account can be found.
It improves the quality of book-keeping and proper representation of all the transactions.

This practice ensures that all the funds are accounted for accurately, and it also prevents future disputes. A Suspense Account is an interim account where transactions are recorded temporarily until they can be correctly allocated to their appropriate accounts. Suspense accounts help maintain the integrity of the double-entry system by ensuring that the trial balance remains balanced even when some transactions are unclear or incomplete.

Financial Close Solution

For instance, if someone makes a deposit and uses a nonexistent account number, the money will be placed into a suspense account until the correct account can be found. There are several errors that may be revealed by the trial balance which involve the suspense account. If the credits in the trial balance exceed the debits, record the difference as a debit–and vice versa–to make both columns of the trial balance report balance. However, these are temporary accounts that must be closed by the end of the accounting cycle. As mentioned before, a suspense account can also be used when the proper account related to a transaction can’t be determined when that transaction is initially recorded.

Suspense Account comes under current asset or current Liabilities depending upon the transaction. 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. Partial payments that do not settle an invoice in full are placed in a suspense account until clarification is obtained. The payment did not specify which invoice it was intended for, so it was temporarily held in a suspense account.

Example 1: Incorrect Entries

Nevertheless, the size of these accounts should be fairly small since most transactions are easily categorized in a regular business operation. An accountant was asked to record a few journal entries written by the finance head of a large corporation. The accountant recorded the “unclassified” amount in the general ledger suspense account to complete the assignment by the deadline. It improves the quality of book-keeping and proper representation of all the transactions. It is like a temporary shelf where all the “miscellaneous” items can be parked until their actual nature can be ascertained. When we record uncertain transactions in permanent accounts, it might create balancing issues.

suspense account definition meaning

Example 3: Accounting Error

After receiving sufficient funds to make a full payment, the mortgage servicer then applies the combined balance to the correct account. Lenders use mortgage suspense accounts to store money when borrowers either overpay or underpay their mortgage payments. So, if you only make a partial mortgage payment, that money goes into a suspense account until you pay the bank enough to cover your last payment in full.

Formerly of FICO and Equifax, John is the only recognized credit expert who actually comes from the credit industry.
A brokerage suspense account plays a crucial role in the world of investing, similar to other types of suspense accounts, but it is specifically used within brokerage firms.
Once the final payment is made and the asset is received, you close the suspense account and open a separate account for the new fixed asset.
It is, therefore, imperative for organizations to proactively manage and resolve suspense accounts to mitigate these risks effectively.

This is where a suspense account comes in to avoid major issues relating to accuracy. The term “suspense account” can have several different meanings, depending on the context. 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. In this example, the suspense account acts as a temporary solution to keep the accounting process moving while the details of the transaction are clarified. In simpler terms, a suspense account is a temporary account where transactions are kept until they can be properly assigned to the right category. When an accounting error is identified, such as a misclassification of expenses, the incorrect entry would be moved to a suspense account while the error is investigated and then ultimately corrected.

This allows for said transactions to be correctly classified when the time comes and to be allocated to the appropriate accounts. No other profession in the world requires the level of accuracy often expected from an accountant. Yet there are times when transactions can’t be fully revealed or classified immediately.