Examples of Accounting Suspense Accounts

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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.

Types

  • 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.

Uses

  • 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.

Problems

  • 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.

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