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

what is a suspense account

There have been times throughout the year when Michelle has used a suspense account because she was unsure of the correct accounting treatment. She also thinks there may be other errors which occurred that did not involve a suspense account. Large corporations can clear their suspense accounts periodically, whereas small enterprises can do so more often. For suspense account journal entries, open a suspense account in your general ledger.

  1. When the process is finished, the accountant may finally terminate the suspense account and transfer the money to the correct account.
  2. After you make the final payment and receive the item, close the suspense account and open a separate asset account.
  3. When the controller is available, the accountant will get clarification and will move the amount from the Suspense account to the appropriate account.

It is useful to have a suspense account, rather than not recording transactions at all until there is sufficient information available to create an entry to the correct account(s). Otherwise, larger unreported transactions may not be recorded by the end of a reporting period, resulting in inaccurate financial results. In accounting for small business, most https://www.quick-bookkeeping.net/basics-of-estimated-taxes-for-individuals/ suspense accounts are cleared out on a regular basis. Move suspense account entries into their designated accounts to make the suspense balance zero. Accounting is about hard numbers, but human errors naturally occur from time to time. If you own a business, you may wonder how accountants handle these errors and accurately balance your books despite them.

Classification of Suspense Accounts

Suspense accounts on balance sheets are not desirable since they might make it difficult to balance the books appropriately. 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. 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.

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. For instance, if the accountant or the owner isn’t sure which account to place a transaction into, then it’ll be moved to the suspense account for the time being. An accountant was instructed to record a significant number of journal entries written by the controller of a large company.