What Is a Suspense Account in Accounting?
Suspense accounts are a key aspect of the general ledger in double-entry accounting. The suspense account allows the bookkeeper to temporarily place doubtful funds until he can determine the correct entry. If the accountant utilizes a suspense account, it is critical that he keeps it in balance and clears it out before the end of the accounting period.
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Definition
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A suspense account serves as a holding account for temporarily unallocated funds. In double-entry accounting, every credit must be offset by a debit. Sometimes, funds do not fit cleanly into a specific bucket. The bookkeeper must do something with the money, but he can't arbitrarily choose a location. He places the funds in a suspense account to give him extra time. After he completes the other entries, he can go back and properly allocate the funds from suspense.
Examples
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If a bank processes all payments at its headquarters in Virginia, but a customer makes his payment at a branch in New Jersey, the teller utilizes a suspense account. He debits the customer's account and credits the payment suspense account. The processor at headquarters debits the suspense account and credits the loan. An accountant finds a receipt without an immediately apparent purpose. Rather than waste time, he debits the bank account and credits the suspense account. When he finds the purpose, he debits the suspense account and credits the appropriate general ledger account.
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Balancing
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While funds are held in suspense, the bookkeeper ensures it stays in balance. The account balance should remain the same until money is moved to or from the account. The bookkeeper reviews a trial balance each day. The trial balance details all account balances at the prior day's close of business. If funds go into or out of the account, the bookkeeper must know why the balance has changed. If the activity is not properly documented, it will be difficult to pinpoint the reason.
Clearing
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A suspense account is a temporary receptacle. The accountant needs to clear the funds as soon as possible. Occasionally, funds will remain for an extended period. An example is a partial commitment fee. The fee is held in suspense until the loan closes. After settlement, the fee is deferred against the loan balance on the system. The idea behind a suspense account is that the accountant only needs it until he knows what to do with the money. If the account carries significant balances for lengthy time frames, the accountant's competence can be called into question.
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