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Until the procurement or accounts department can get verification from the departmental manager and the correct budget is identified, the cost sits in the suspense account. A woodworking firm receives part-commission in advance to build a range of garden furniture for a client. Because this payment isn’t in full, it doesn’t have a direct correlation on the balance sheet as it won’t match revenue, inventory or expenses. It will be moved onto the ledger once the commission has been paid in full following the completion of work. It is used only because a proper account for a particular transaction couldn’t be determined at the time when the transaction was recorded.

Example of Using a Suspense Account

There are several situations for holding an entry in a suspense account. A customer paid $1,000 in cash without specifying which invoice the payment relates to. Let’s suppose you have been alerted that a remittance someone sent you from abroad is ready for withdrawal. Until you actually make the withdrawal from the agent or financial institution, the remittance money may be stored in their suspense account. There is an uncertainty regarding transaction classification at the time of its entry into an accounting system. As you can see, there is now a nil balance carried forward in the suspense account.

Like other suspense accounts, a brokerage suspense account is sometimes used as a temporary holding account when an investor sells securities but plans to reinvest the money right away. For example, if you sell off some stock for a profit of $5,000, that money might go into a suspense account until it’s reinvested in the market. The suspense account can also work as a security feature for investors, says Harry Turner, former hedge fund manager and founder at The Sovereign Investor.

  • Later, you decide to bill the supplies account of the purchasing department.
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  • To record this, Michelle processed a journal entry to remove both the $400 trade payable and $500 trade receivable and posted the difference to the suspense account.
  • Suspense accounts are temporarily classified as a balance sheet account, usually under the heading of current assets or current liabilities depending on the normal balance.
  • Most accounting systems contain a suspense or mispostings account in their chart of accounts, but this is something that you should avoid using unless there are no other options.

Again, Pearce would advise that a suspense account is a very temporary measure and it should be cleared as quickly as possible to make sure the company’s financial statements are fully correct and compliant. The procurement department of a large warehousing company receives a bill from a software company that is accompanied by a verifiable purchase order and so issues the payment. However, the purchase order does not specify which departmental budget the cost should be allocated to.

They ensure that you account for all transactions accurately in your books. 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. The bookkeeper is unable to balance the company’s trial balance, with the credit column exceeding the debit side by $500. 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. 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.

How is the suspense account balance entered into the general ledger?

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Example #1: Receiving a partial payment

A suspense account is an account used to temporarily store transactions for which there is uncertainty about where they should be recorded. Once the accounting staff investigates and clarifies the purpose of this type of transaction, it shifts the transaction out of the suspense account and into the correct account(s). Similar to the other types of suspense accounts, brokerage suspense accounts temporarily hold funds while transactions are completed.

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The servicer must also explain what the borrower needs to do in order to have that money applied to their mortgage payment. A mortgage servicer can use a suspense account to hold funds when a borrower falls short on their required monthly loan repayment, possibly by accident. The BlackLine Account Reconciliations product, a full account reconciliation solution, includes a suspense template which serves as a complete solution for managing suspense accounts. Ideally, a business will have a zero balance in the suspense account—or no suspense account listed—in its financial statements. An incomplete transaction should neither be overlooked nor entered improperly. The suspense account provides a place for accountants to temporarily log and track incomplete transactions until more information is obtained.

Similarly, a business could get an invoice in the mail that doesn’t note the product or service it’s meant to pay for. Until that’s cleared up, a bookkeeper might set that money aside in a suspense account so the cash is available as soon as they uncover the reason for the invoice. 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. If you get a payment, but you don’t know who has sent it, you may need to place the amount in a suspense account.

You buy a fixed asset but don’t receive it until it’s paid off

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Transactions that are booked before an allocation is made to the appropriate cost or profit center will be recorded in the suspense account until they can be properly assigned. A partial payment occurs when a customer does not pay the full amount owed for a transaction. 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. Once the accountant has enough information, they can reassign the transaction out of the suspense account and into the appropriate account within the general ledger.

When to use suspense accounts

In that case, that money may go into a mortgage suspense account until it’s determined how to properly distribute those funds. Obviously, you don’t want to just keep throwing unidentified transactions into a suspense account and end up with a cash account full of money you don’t know what to do with. Most of the time, it just takes a little digging to find the proper accounts and get that suspense balance back to zero. A suspense account is an account of the general ledger that is used for the temporary recording of business transactions.

A suspense account is an entry in your ledger where you can record transactions that can’t yet be classified. For example, a customer sends £250 to your business but doesn’t provide any detail about which of your open invoices this pertains to. Until you can ascertain what the £250 is paying for, you’d park that transaction in your suspense account.