Suspense Account

Transform your accounts receivable processes with intelligent AR automation that delivers value across your business. If you’re unsure about where to enter a transaction, open a suspense account and talk to your accountant. 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.

Emilie is a Certified Accountant and Banker with Master’s in Business and 15 years of experience in finance and accounting from large corporates and banks, as well as fast-growing start-ups. For efficiency purposes, it is also helpful to track and analyze the entries over time to minimize the reoccurrence of any transactions that cause frequent unnecessary postings into the suspense account. This is because unallocated transactions get more difficult to reconcile with passing time, especially if there is insufficient documentation, and the account balance could grow uncontrollably. For example, if an investor who sells off securities worth $10,000 plans to promptly reinvest that money into other financial instruments, the $10,000 would be temporarily moved to a suspense account until it is reinvested. The suspense account can hold the difference that led to the trial balance not balancing until the discrepancy is rectified.

Suspense accounts are meant to temporarily record transactions that require more research before they are permanently recorded. The Department of Defense has lacked internal controls over its suspense accounts for decades, leading to large balances and costly write-offs. The suspense account can also be used when there are issues regarding which department should be billed for an expense.

This has contributed to unreliable financial information as the underlying transactions are not properly recorded in the accounting records. This is why accountants and bookkeepers make suspense account journal entries — to still keep track of ambiguous payments while avoiding the mistake of recording transactions in the wrong accounts. Once the anomaly is cleared up, the correct account can be credited properly, thus averting inaccurate financial results. Suspense accounts are important in accounting because they help filter out transactions that cannot be identified at the time of recording. These accounts work as a temporary location to store unknown transactions, and once the amount is determined correctly, it can be moved to the regular ledger account.

Accordingly, there should be a daily measurement of the balance in the suspense account, which the controller uses as the trigger for ongoing investigations. When you receive the full payment from the customer, debit $50 to the suspense account. This closes the suspense account and moves the payment to the correct account. For suspense account journal entries, open a suspense account in your general ledger. The purpose of suspense account entries is to temporarily hold uncategorized transactions. Close the account after moving the entry to the correct permanent account.

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For example, money may be transferred to a bank but not deposited into an account, or when money is received by a customer before a policy or contract is written. Like other suspense accounts, a brokerage suspense account is sometimes used as a temporary holding account when an investor sells securities but plans to reinvest the money right away. For example, if you sell off some stock for a profit of $5,000, that money might go into a suspense account until it’s reinvested in the market.

A suspense account is also known as a difference in book account or an error account. 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. Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications.

Unknown payment or invoice

To sustain timely performance of daily activities, banking and financial services organizations are turning to modern accounting and finance practices. BlackLine’s foundation for modern accounting creates a streamlined and automated close. We’re dedicated to delivering the most value in the shortest amount of time, equipping you to not only control close chaos, but also foster F&A excellence. Understand customer data and performance behaviors to minimize the risk of bad debt and the impact of late payments. Monitor changes in real time to identify and analyze customer risk signals. Maximize working capital with the only unified platform for collecting cash, providing credit, and understanding cash flow.

Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Suspense accounts are used by accountants in many different types of situations. Every executive is committed to ensuring transformational success for every customer.

Trial Balance

Suspense accounts in a company’s general ledger typically contain entries where there are uncertainties or discrepancies that need to be resolved. For example, if a customer of a business makes a payment but writes down their account number incorrectly, that money may be parked in a suspense account until the error is corrected and the payment can be properly credited. In another scenario, a customer might make a payment but fail to specify which of several outstanding invoices they intended to pay off with those funds. Suspense Account is primarily prepared to rectify all the one-sided errors, which affect the trial balance. Those errors that do not affect the trial balance are not rectified by the suspense account.

Without accurate information, organizations risk making poor business decisions, paying too much, issuing inaccurate financial statements, and other errors. An illustrative example 

Michelle runs a small business and does her own bookkeeping but does not have very much experience in this yet. There have been times throughout the year when Michelle has used a suspense account because she was unsure of the correct accounting treatment. She also thinks there may be other errors which occurred that did not involve a suspense account. If you don’t know who made the payment, look at your outstanding customer invoices and find which one matches the payment amount. Contact the customer to verify that it’s their payment and the right invoice.

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We empower companies of all sizes across all industries to improve the integrity of their financial reporting, achieve efficiencies and enhance real-time visibility into their operations. Obviously, you don’t want to just keep throwing unidentified transactions into a suspense account and end up with a cash account full of money you don’t know what to do with. Most of the time, it just takes a little digging to find the proper accounts and get that suspense balance back to zero.

After that, he consulted with Mr. Gladwell who clarified the nature of the operation. His accountant then reclassified the operation as a fixed asset purchase and the suspense account the cares act employee retention tax credit balance was removed. GAO reviewed DOD and DFAS policies and procedures, interviewed DOD and DOD OIG officials, and reviewed initiatives related to suspense account transactions.

If the credits in the trial balance are larger than debits, record the difference as a debit. If the debits are larger than credits, record the difference as a credit. The rules that mortgage servicers must follow are spelled out by the Consumer Financial Protection Bureau, which enforces the federal Real Estate Settlement Procedures Act.

Example #4 – Trial Balance

It is possible to also have a liability suspense account, to contain accounts payable whose disposition is still being decided. If so, the liability suspense account is classified as a current liability. When you record uncertain transactions in permanent accounts, you might have incorrect balances. Suspense accounts help you avoid recording transactions in the wrong accounts.

These accounts are used for unclassified transactions or those that have an unknown customer. They may also be used for issues such as partial payments, purchasing a fixed asset that hasn’t yet been received, when information has been changed on the account, or any other miscellaneous issues. Suspense accounts may also be implemented in brokerage firms when the client is making a decision about an investment and with mortgage lenders when a partial payment is received.

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University. Because transactions in a suspense account are unallocated, the account should be considered temporary. For example, payments may be received with invalid or unclear account information.

If the Suspense Account shows a debit balance, it is taken to the asset side of the Balance Sheet, whereas if it shows a credit balance, it is taken to the liability side of the Balance Sheet. Although DOD and DFAS have taken steps to align their suspense account policies and procedures with relevant federal guidance, GAO found that they were insufficient, outdated, and inconsistently implemented. For example, in March 2020 DOD issued a policy memorandum requiring its component organizations to clear aged suspense account balances—those more than 30 days old—by June 2020. If components could not appropriately research and clear these balances, components were instructed to remove the balances from suspense accounts by transferring them to other accounts. While these efforts reduced the aged balances by roughly $30 billion, guidance on the specific steps to remove the balances was not provided. As of June 30, 2020, DOD’s suspense account balance was $1.6 billion, of which $366 million was more than 30 days old.

• When you receive the full payment from the customer, debit $50 to the suspense account.
• Our consulting partners help guide large enterprise and midsize organizations undergoing digital transformation by maximizing and accelerating value from BlackLine’s solutions.
• If you’re unsure about where to enter a transaction, open a suspense account and talk to your accountant.
• The rules that mortgage servicers must follow are spelled out by the Consumer Financial Protection Bureau, which enforces the federal Real Estate Settlement Procedures Act.
• Together with expanding roles, new expectations from stakeholders, and evolving regulatory requirements, these demands can place unsustainable strain on finance and accounting functions.

Suspense account entries are an accounting tool used to temporarily hold funds while any unidentified or unclear transactions are resolved. Many businesses will record a payment in a suspense account if there is a question about where to apply it in the general ledger. A mortgage servicer may also use a suspense account to hold a partial payment until it receives the remainder of the mortgage payment.