Suspense Account – Definition and Use
A suspense account is an account temporarily used in general ledger to carry doubtful amounts which can either be a payment or a receipt. Despite considerable efforts, if the reason(s) causing these questionable amounts are not found, the difference in the trial balance is temporarily transferred to a suspense account till it is properly analyzed and classified.
The difference amount is temporarily recorded in a suspense a/c and should be cleared at some point as it possesses a control risk. A Suspense account is used to mitigate risk which is addressed and when the errors are rectified.
A Suspense account is used only because a proper account for a particular transaction couldn’t be determined at the time when the transaction was recorded. When the right account is determined, the amount shall be moved from the suspense account to its proper account.
Example Showing the Use of a Suspense Account
Cash received from Unreal Pvt Ltd. for 5,000 is wrongly posted to Unreal Pvt Ltd’s. account as 50,000, It is however correctly recorded in the cash account. To correct this entry we will use suspense account
|To Unreal Pvt Ltd A/C||50,000|
Faulty Journal Entry
Considering the fact that the proper account couldn’t be determined at the time of correction, the journal entry for rectification will be
|Unreal Pvt Ltd A/C||45,000|
|To Suspense A/C||45,000|
What happens in case a suspense account is not closed?
In case a suspense a/c is not closed at the end of an accounting period, the balance in suspense account is shown on the asset side of a balance sheet if it is a “Debit balance”. In case of a “Credit balance”, it is shown on the liability side of a balance sheet.