The Suspense Account – Everything You Need to Know

Definition

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. Often, the bookkeeper can simply scan the books for the culprit and correct the problem. When they can’t identify the error, they rely on a tool called the suspense account. You will likely see a suspense account come up on your business’s Trial Balance, so it is worth understanding how it functions to help balance your books and secure your bottom line.

A suspense account is used to address errors and uncertainties in the ledger. When adding up the Trial Balance, your bookkeeper may notice inconsistencies that prevent the columns from balancing. They will then insert a suspense account, which records and temporarily stores these discrepancies. Once the accountant identifies the problematic transaction, they can transfer that entry out of the suspense account and into the appropriate account. In doing so, the accountant resolves the error and is able to balance your books. This process is known as “zeroing” the suspense account, and should be performed on a regular basis. Note that a suspense account most commonly takes the form of a current asset or current liability. A suspense account can also take the form of a credit or a debit, depending on what is needed to even out the Trial Balance.

When to Use Suspense Account

The Suspense account is like a messy kitchen drawer. Accountants use it to store transactions when they are not sure what to do with them – temporarily, of course, because these errors must be resolved in order to balance the books. There are several types of errors in accounting that prevent balanced books and which necessitate the insertion of a suspense account.

• Part omission (i.e. transaction is only partially recorded)
• Part original entry (e.g. one account is debited for $78 and other is credit for $87)
• Repetitive entries in debit or credit
• Uneven Trial Balance

Example of a Suspense Account

Trial balance as on 31st March, 2017

Consider the example Trial Balance above, which contains a $24,000 debit in the form of a suspense account. Without this transaction, the debit and credit columns would not balance. If the credit side had been short, the suspense account would have been added to that column.

In addition to adding this account to the Trial Balance, a separate suspense account must be placed in the ledger. It would look something like this:

This ledger entry allows for a more detailed description of the specific errors at hand. In this example, it was found that payment for office desks and chairs has been recorded in the account for Furniture as $1,500 instead of $5,100. We will first record the difference ($5,100 – $1,500) in the Suspense account and then add an adjusting entry to the appropriate account (Furniture). As this example demonstrates, the suspense account in the ledger records the problematic transaction so that we can then shift it to the correct account; having done this, the accountant is able to zero the suspense account and properly balance the books.

This suspense account points to another error, which you may have noticed in the Trial Balance. The Cash balance is higher than what was indicated in the Trial Balance and equals to $6,800. The loan was also partially repaid, decreasing the Loan account balance by $2,400. Accordingly, these corrections will be added to the Suspense account and corresponding accounts. As you can see, the accountant still has to find errors that caused a $15,400 difference.

Suspense accounts exist because we’re all human, and errors happen. When it comes to your business, however, bookkeeping errors can be costly. Why balance your own books and navigate this minefield alone? Instead, hire an experienced accountant! BooksTime bookkeepers can help you balance your books with confidence and precision. Get a free consultation to learn more about how professional accounting services can help you grow your business while saving you valuable time and money.