Suspense Account

26th November 2020 0 By indiafreenotes

A suspense account is an account used temporarily or permanently to carry doubtful entries and discrepancies pending their analysis and permanent classification.

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.

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 accounts. Otherwise, larger unreported transactions may not be recorded by the end of a reporting period, resulting in inaccurate financial results.

It can be a repository for monetary transactions (cash receipts, cash disbursements and journal entries) entered with invalid account numbers. The account specified may not exist, or it may be deleted/frozen. If one of these conditions applies, the transaction should be directed to a suspense account.

In branchless banking (BB): Banking through mobile for unbanked – these accounts are used for ‘money-in-transit’. 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.

A suspense account is an account in the general ledger in which amounts are temporarily recorded. A suspense account is used when the proper account cannot be determined at the time the transaction is recorded. 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.

Suspense accounts should be cleared at some point, because they are for temporary use. Suspense accounts are a control risk.

An accountant was instructed to record a significant number of journal entries written by the controller of a large company. Unfortunately, there was one amount that did not have an account designated. In order to complete the assignment by the deadline, the accountant recorded the “mystery” amount in the general ledger Suspense account. When the controller is available, the accountant will get clarification and will move the amount from the Suspense account to the appropriate account.