From time to time, while posting transactions, you don’t get all the essential information for recording. Missing and incorrect details can negatively affect your bookkeeping efforts, but you need to make sure that every transaction is recorded properly. Among others, one of the financial accounts is the suspense account. While recording a business transaction, if you are unable to classify and determine an ambiguous entry or transaction, the suspense account is the point of last resort. Read on the learn what is suspense account, when to use it and what are the uses of a suspense account?
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What is a Suspense Account?
A suspense account is a section in the general ledger which temporarily records transactions that are unclassified yet to be assigned to their proper destination. In other words, it is the general ledger account where you record transactions on a temporary basis. The transactions in the suspense account should be moved to their proper accounts as early as possible.
When to Use Suspense Account?
Here are the situations where you can use a suspense account:
To Prepare a Trial Balance
It is the closing balance of the account is calculated at the end of the accounting period. To match the debit and credit balances, you can hold the difference in the suspense account until it is corrected.
A Partial Payment was Made to You
On receiving partial payment from a customer, and if you’re not sure which invoice they’re going to pay for. Keep the partial money in a suspense account until you get in touch with the consumer. Close the suspense account and transfer the funds to the relevant account once you’ve got the invoice.
If you don’t have any Idea of the Payer
You may get a payment but be confused about who made the payment. Check out your outstanding client invoices to see which one matches the payment amount if you don’t know the person who sends them. Get in touch with the customer to ensure that it is their money and that the invoice is accurate.
You Purchase a Fixed Asset, but you don’t Get it Until it’s Paid off.
When you acquire a fixed asset on a payment plan but don’t receive it until the balance is paid off, you can use a suspense account. Close the suspense account and start a new asset account once you’ve made the final payment and received the item.
If You Have no Idea How to Categorise a Transaction
You’re not an accountant; you’re a small business owner. You can be unsure how to classify a transaction at times. Open a suspense account and consult your accountant if you’re unsure where to put a transaction.
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Uses of Suspense Account
Suspense accounts help you to keep the books of accounts organised. It ensures the accuracy of your accounts in the books. Recording uncertain transactions in your permanent accounts might result in incorrect balances.
Suspense accounts provide you time to investigate the transaction’s nature while still recording it on the books. General uses include:
- Payments received with incorrect account information, insufficient instructions on how to apply invoice payments or other difficulties that prohibit them from being posted normally.
- Money has been transferred to the bank of the supplier but has not yet been deposited into an account, or money has been received before a policy or contract has been signed. Booking of transactions before an allocation to the appropriate cost or profit centres.
- Amounts that are up for debate in court
Suspense accounts are common in accounting schemes for organisations of all kinds, but they are especially important to insurance companies.
Quick Sum Up
Hopefully, you have understood what is a suspense account and when and how to use it. You need this account to keep your accounting records organised. It ensures accuracy while recording transactions in the books. You may have inaccurate balances if you record unclear transactions in permanent accounts. Suspense accounts prevent transactions from being recorded in the wrong account. It also helps to avoid losing track of a transaction due to a lack of data.
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Disclaimer: This post is just written for informational purposes.