Suspense Account: The Complete Guide + Examples

Investing and brokerage suspense accounts temporarily hold investors’ funds until the money is allocated towards the purchase of new investments. 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. You have received cash from one of the credit customers amounting to $10,000.However, the customer has not specified the invoice from the outstanding ten invoices he has paid. Further, an accounting system does not allow the recording of receipts without invoice tracking. So, the question arises of how an accountant/bookkeeper should record the collection. Accuracy is vital to accounting, so consider double-checking your work as you enter transactions into suspense accounts to review later.

It’s beneficial to record these partial payments in the company’s suspense account until your client receives the payment in full, and you can move the completed transaction to the general ledger to show the total revenue. It’s important to understand who sent an invoice or made a purchase when keeping accounts for your clients, so consider putting transactions into a suspense account if the sender is unclear. Doing this allows you to figure out who sent payments or invoices and track that revenue and expense in the proper parts of your client’s ledger. Using a suspense account for transactions without obvious senders also allows you and your client to ensure the correct people are sending and receiving payment. All financial transactions related to your business are recorded in a minimum of two accounts. These transactions effectively zero out each other but allow for financial data to be recorded in all the places it needs to be. To keep it simple, payroll entry of $1,000 for payroll might be coded to the warehouse department for an employee’s wages.

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Then, we close the account after making the necessary adjustments so that it’s no longer part of the trial balance. Instead, it is used to give some leeway to the accountant to find the true nature of some transactions to make the ledger books more robust.

Definition of suspense account

If you don’t know who made the payment, look at your outstanding customer invoices and find which one matches the payment amount. Contact the customer to verify that it’s their payment and the right invoice. 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. A customer paid $1,000 in cash without specifying which invoice the payment relates to. For example, if an investor who sells off securities worth $10,000 plans suspense payment definition to promptly reinvest that money into other financial instruments, the $10,000 would be temporarily moved to a suspense account until it is reinvested. In short, a suspense account is the point of last resort when you need a short-term holding bay for financial items that will end up somewhere else once their final resting place is decided. When the business is unsure about the account in which they need to park a particular transaction, it is best to put the transaction in a suspense account and consult with your accountant before making any decision.

Some jurisdictions have rules and regulations regarding suspense accounts because they are considered a control risk. In both cases, you hold the payment in the suspense account until the matter is clarified with the payer, at which point the amount is moved to from the temporary suspense account to its appropriate final destination in the general ledger. The unclassified transactions temporarily “parked” in this account are a “suspense” that we need to investigate and relocate into their correct accounts accordingly. At times, all the required details for a particular transaction are not available but it still needs to be recorded in order to keep the accounting books updated. Finally, a fourth variant allows the sponsor to transfer all the excess assets into a suspense account that can then be allocated to workers’ defined contribution accounts over seven years.

Statistics for suspense account

If you pay only part of what you owe for a particular installment, the suspense account will hold your payment in suspense until a full payment is available. For example, let’s say you split your mortgage payments up and pay two payments per month rather than once a month.

Having undertaken a review, the commercial concern just cannot slide the costs away into some suspense account. If, however, there is only a suspense account he can draw only up to £10 per week. DebitsDebit represents either an increase in a company’s expenses or a decline in its revenue. Has not yet been cleared, we must move on to note 2, which tells us that an item of $500 was omitted from the sales records–ie, the sales day book. Balance will be provided, probably based on the first type of situation I have described, together with a number of errors that have been uncovered.

Disputed Amounts and Suspense Accounts

Suspense accounts, however, are more typically used when there is some question about the transaction that needs to be resolved. Mortgage servicers can use a suspense account when a borrower falls short on a monthly payment or breaks up their monthly payment into partial amounts. A suspense account is an account that is used to temporarily store money until a decision is made about where the money will be allocated. It identifies where the money came from and allows the money to be used as payment to one or more policies.

In similar ways, it could also be used to park an “unclassified” liability. Suspense is frequently used in the books of accounting in the following circumstances. Harold Averkamp has worked as a university accounting instructor, accountant, and consultant for more than 25 years. Every day when you go to work or school, the first thing you have to do is find a place to park.

Words nearby suspense account

In mortgage servicing, the servicer can use a suspense account to park funds temporarily if a borrower has made only a partial payment for that month. In investing, a suspense account is a type of brokerage account where a customer’s proceeds from selling an investment may be recorded until the customer uses the money to invest in something else. The suspense account is used as a place to temporarily hold unclassified funds while the company decides where to put them permanently. This typically arises when funds are received and there is doubt as to which account to apply them.

• Another instance in which having a suspense account comes in handy is when a trial balance is out of balance, meaning the debit and credit columns do not match.
• This can help you and your client watch for errors in those transactions or fix the problem by contacting the sender directly.
• When accountants encounter unfamiliar or ambiguous transactions within a company, they note the transaction in a suspense account until they can discover more information about it.
• Both suspense accounts and clearing accounts are used to temporarily record transactions, until they can be permanently assigned.
• Suspense accounts are also used by lenders, such as mortgage providers, when borrowers accidentally or intentionally break up their regular payment obligations.
• An account in which a company deposits and withdraws funds for transactions that have not yet been completed.

If one of these conditions exist, the transaction should be directed to a suspense account. In branchless banking – 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 any BB agent.

Suspense accounts in a company’s general ledger typically contain entries where there are uncertainties or discrepancies that need to be resolved. For example, if a customer of a business makes a payment but writes down their account number incorrectly, that money may be parked in a suspense account until the error is corrected and the payment can be properly credited. In another scenario, a customer might make a payment but fail to specify which of several outstanding invoices they intended to pay off with those funds. Accountants use suspense accounts to temporarily hold unidentifiable transactions.

In the investment field, suspense accounts are also known as brokerages accounts set for short-term periods until the money is allocated in a client’s account; this is the case when a client is opening an account but its unique account number hasn’t been assigned yet. You may also put a transaction into a suspense account if the reason for the expense or revenue is unclear. This can occur if there’s a receipt or invoice for an amount without a description of the product or services that incurred the cost or brought the payment. When there isn’t a clear reason for an amount, putting it into a suspense account until your client can clarify the payment allows the general ledger to stay free from errors. You can use a suspense account when the sender or recipient of a payment is unclear, when the reason for a transaction is unknown, when a client obtains partial payments or when a client hasn’t received the items they’ve purchased.

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The contractor later sends an invoice requesting $2,000 in payment, but they don’t specify if this amount is for all the renovations or only part of them. The accountant debits the amount from the suspense account and credits the accounts payable with the same number to ask their client about later. The suspense account is classified as a current asset, since it is most commonly used to store payments related to accounts receivable. It is possible to also have a liability suspense account, to contain accounts payable whose disposition is still being decided.