Suspense account

An account used to temporarily store such business transactions whose appropriate account is not ascertainable is called suspense account. This account is useful to store all ambiguous or uncertain transactions at one place. So that at a later stage, they can be analyzed and shifted to their appropriate general ledger account.

In the absence of such account, if the accountant is not able to ascertain the relevant general ledger account to which a transaction pertains, he will not record that transaction and such transaction can be forgotten and remain unrecorded. Using the suspense account, transactions are recorded in a timely manner. Later on, such ambiguous entries are analyzed by senior accountants and are shifted to the relevant general ledger accounts.

At the time of preparing financial statements, balance of suspense account should be zero. If this is not the case, it means that there are some errors in financial records that need to be rectified.

Example of suspense account

An amount has been credited in a Company’s bank account through online transfer. The accountant has recorded a debit entry in bank’s ledger account. However, he is not sure where to record the credit entry, as there is no further detail available. It can be a receipt from a debtor or an advance from a customer or any other receipt. So, at the time of the transaction, he records the credit entry in suspense account and asks the credit department to investigate this receipt. Credit department contacts various likely customers who could have deposited this amount. Upon discussion with a customer, it is clarified that this receipt was the payment of goods that he purchased on credit 2 months back.

Now the accountant is clear and knows that credit entry of this transaction pertains to accounts receivable. So he shifts this credit entry from suspense account to accounts receivable.