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- For instance, if the accountant or the owner isn’t sure which account to place a transaction into, then it’ll be moved to the suspense account for the time being.
- A suspense account may be added to the trial balance when there are understated or overstated balances that cannot be corrected before the end of the reporting period.
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- There are several best practices that can be applied to the use of a suspense account.
- The suspense account will be written off from the books of account after all of the errors have been detected and corrected.
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A suspense account is an account of the general ledger that is used for the temporary recording of business transactions. The need for a suspense account arises due to the inability to identify the appropriate ledger account for the recorded transaction. A suspense account is a temporary account created to adjust the difference in the trial balance due to the occurrence of an error or errors in the books of an account pending the determination of their actual locations. A suspense account is an entry in your ledger where you can record transactions that can’t yet be classified. For example, a customer sends £250 to your business but doesn’t provide any detail about which of your open invoices this pertains to.
Frequency: How Often Should Suspense Accounts be Reconciled?
In this case, you may choose to have a single suspense account entry until you figure out where the transaction should be recorded. Suspense accounts can be an incredibly important tool, ensuring you don’t lose track of certain transactions or accidentally enter figures in the wrong place, which can result in errors in your financial statements. One rogue entry into your accounting software will at best disrupt your financial reporting and at worst cost your business money. The main purpose of setting up a suspense account is to keep track of temporary transactions that have not yet been posted to the ledger account. These temporary transactions are “suspended” or held in suspense until they can be identified with a specific ledger account. The suspense account in accounting is a general ledger account used to make temporary unclassified transaction postings until the correct classification can be determined using transaction analysis.
Later, when they receive more information, they can transfer the entry from the https://www.bookstime.com/ to the correct account. The unclassified transactions temporarily “parked” in this account are a “suspense” that we need to investigate and relocate into their correct accounts accordingly. Because transactions in a suspense account are unallocated, the account should be considered temporary.