Suspense accounts are temporary holding accounts for financial information on the general ledger. They are used to book large entries quickly or hold certain items that will be broken down at a later time. Suspense accounts may be reconciled each month to ensure that all the financial information posted will be properly disbursed to other accounts.
Suspense accounts can be used as journal entry offsets for debit and credit balances. Cash, payroll, expense and prepaid items can all have suspense accounts linked to the initial journal entries. While most suspense accounts maintain a zero balance each month, some may carry a balance if necessary. The suspense accounts must be grouped with the proper accounts, asset or liability, on the financial statements; this is determined by the remaining debit or credit balance in the account.
Government entities and businesses use suspense accounts in their daily accounting operations. Government accounting operations may use suspense accounts in a large-scale operation; the county municipality collects revenue, books it into a suspense account, and then separates each smaller municipality or government office out from the suspense account. This is an effective way of recording large batches of revenue quickly and then distributing the money as individual accounts are balanced.
Businesses tend to follow the same operation, only on a smaller scale. Large sums of revenue, cash or payroll are posted into a suspense account and then separated into other accounts as accounts are reviewed and balanced. Large corporations may use suspense accounts to distribute financial information to regional or local business operations around the country. This allows for a single accounting office to handle bulk information quickly and efficiently.
Suspense accounts can create several problems if not balanced correctly. Carrying a balance in the suspense account each month can cause financial information to become overlooked and unallocated to the proper account. If the suspense account has a high volume of transactions, reconciling the account to find out where the remaining balance goes can be time-consuming.
Additionally, having a suspense account presented on the financial statements with a balance can weaken the statements to outside investors. Suspense accounts are viewed negatively, since the information contained in the suspense account is an unallocated amount.
What is Suspense?
A dictionary definition of suspense would indicate that it is a feeling of apprehension about what is yet to happen. To be...
What Is the Meaning of a Suspense Account?
In accounting, the money coming into the business must match the money going out of the business. This doesn't always happen. Sometimes,...
Example of Accounting Information
Accounting information is the cornerstone of corporate financial data and trends on securities exchanges. Accounting data is important not only for a...
How to Set up Accounts in QuickBooks
QuickBooks is accounting software created by the Intuit company. It allows users to setup, edit and maintain company accounting. Adding a new...
How to Enter Credit Card Purchases in Peachtree Accounting
Peachtree is business management software created and published by Sage Software. With Peachtree, you can handle all financial transactions for a company....
How to Make a Journal Entry Correction on Peachtree
Peachtree accounting software uses journal entries to help the bookkeeper or accountant keep the general ledger accounts in balance. When you are...
What Is Interest in Suspense in a Balance Sheet?
Interest in suspense is a particular kind of asset that may appear on a company’s -- or even an individual’s -- balance...
What Is a Permanent Account in Accounting?
Accounting uses multiple financial accounts to organize and retain financial information relating to business transactions. The accounts are either permanent or temporary....