Sometimes, accounting teams don’t have all the necessary information for a particular transaction. Regardless of that, they need to record every transaction to keep their ledger books up to date, and this is where the suspense account comes in handy, as they are not sure where to record general ledger entries. After you make corrections, close the suspense account so that it’s no longer part of the trial balance. The term “suspense account” can have several different meanings, depending on the context. 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. Likewise, if the trial balance shows debits are larger than credits, the difference should be entered as a credit because the amount will be cleared once the difference has been reconciled.

• From an accounting perspective, suspense accounts are used to reconcile the ledgers in the occasion that the nature of one or more transactions is unclear.
• In such cases, a company can take the help of a suspense account to record all such unclassified transactions in accounting.
• By temporarily holding these transactions, suspense accounts ensure that all financial activities are recorded accurately and transparently.
• My Accounting Course  is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers.
• Suspense accounts are commonly used when there is no paper trail for the transaction or the nature of it hasn’t been informed yet.

Best Practices for Accounting

Once the necessary information regarding the payment is received, the transaction can be transferred from the suspense account examples suspense account to the designated account. Even if there is no timeline set by regulatory authorities for the clear-out process, businesses routinely carry out monthly or quarterly suspense account reconciliations. 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.

• Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications.
• Double Entry Bookkeeping is here to provide you with free online information to help you learn and understand bookkeeping and introductory accounting.
• This allows accountants to continuously monitor and adjust the entries without affecting the integrity of the overall records.
• Sometimes, accounting teams don’t have all the necessary information for a particular transaction.
• When an accounting error is identified, such as a misclassification of expenses, the incorrect entry would be moved to a suspense account while the error is investigated and then ultimately corrected.

Example #4 – Trial Balance

When the trial balance shows credits exceeding debits, the difference should be recorded as a debit to reflect the temporary nature of those funds. In these situations, the transaction will be entered into the suspense account until more information, such as an invoice, is gathered and the transaction can be correctly assigned. At the end of the month, his accountant had to reconcile the bakery’s ledgers but there was a bank transaction of $300 that he had no record off. In order to file the https://www.facebook.com/BooksTimeInc/ monthly tax report on time he put this amount in a suspense account and the ledgers were reconciled perfectly. The main purpose of setting up a suspense account is to keep track of temporary transactions that have not yet been posted to the ledger account.

Would you prefer to work with a financial professional remotely or in-person?

Having a larger number of unreported transactions would mean that it won’t be recorded by the end of the reporting period, resulting in inaccurate financial outcomes. It is useful to have a suspense account, rather than not recording transactions at all until there is sufficient information available to create an entry to the correct account(s). Otherwise, larger unreported transactions may not be recorded by the end of a reporting period, resulting in inaccurate financial results. A trial balance is a worksheet with totals of all accounts in the general ledger.

For instance, if the accountant or the owner isn’t sure which account to place a transaction into, then it’ll be moved to the suspense account for the time being. As cash has been received, an accounting entry will be recorded in the suspense account until the missing information is provided or obtained. 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. https://www.bookstime.com/articles/full-charge-bookkeeper 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.