Finally, for the buying department to complete the transaction, the accountant will credit the suspense account and debit the supply account. Both suspense accounts and clearing accounts are used to temporarily record transactions, until they can be permanently assigned. When the company gets the entire payment from the customer, they will debit $50 from the suspense account and credit the receivable accounts with the same amount. When the process is finished, the accountant may finally terminate the suspense account and transfer the money to the correct 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.
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You don’t know who a payment is from
Brokerage firms also use suspense accounts to, for example, keep track of a customer’s money between the time they sell an investment and when they reinvest that money. A suspense account has a general ledger that you can use for the temporary recording of business transactions. The need for a suspense account arises when you are unable to identify the appropriate ledger account for the transactions which have been recorded.
Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications. At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content. Let’s suppose you receive a payment from an unknown entity; or the sender is known but you are not sure which invoice they are paying for. Suspense accounts are used by accountants in many different types of situations.
Question 4
You can quickly go back to the record and check which invoice matches the amount that has been transacted. Lastly, if you cannot see who has made a transaction, then move the amount to a suspense account. You can move it back to your record after you come to know who made the transaction.
A suspense account is an account where you record unclassified transactions. The account temporarily holds entries while you decide how you will classify them. A suspense account can also hold information about discrepancies as you gather more data. It acts as a temporary location for storing unidentified transactions and once the amount is properly identified, it can be moved to the appropriate ledger account.
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For instance, the debit and credit sides don’t add up when the trial balance is prepared. The difference that you find is the trial balance can be transferred to a suspense account secondly, if you have received a partial payment from a client. You can transfer the amount to a suspense account until you figure out which invoice has been cleared.
- If a transaction has been in the suspense account for some time, noting the cause can help you remember the details you need to unravel it and maintain your client’s finances.
- The suspense account is used because the appropriate general ledger account could not be determined at the time that the transaction was recorded.
- BlackLine solutions address the traditional manual processes that are performed by accountants outside the ERP, often in spreadsheets.
- When you are looking to invest money, you can transfer your funds to a suspense account until you decide where to invest that capital.
- “We would recommend keeping track of suspense items within a control account in your accounting software,” says Alice Pearce, Senior Client Advisor at Wilson Partners accountancy firm.
- A trial balance is a worksheet with totals of all accounts in the general ledger.
- You also avoid failing to record a transaction because of missing information.
If it’s an asset in question, the suspense account is a current asset because it holds payments related to accounts receivable. A suspense account could also be a liability if it holds accounts payables that you don’t know how to classify. 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. 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.
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Partial payments can come in many different forms, such as a deposit on a real estate transaction or an upfront payment for a service order. For example, payments may be received with invalid or unclear account information. what is suspense account Other details may also be unclear, such as the amount of the transaction or the payee. However, all transactions require complete and accurate information before they can be entered into the financial records.
