A suspense account is a temporary holding account used to record transactions that cannot be immediately classified or allocated to their proper accounts. It is typically used when there is insufficient information or documentation to determine the correct account for a transaction.
Suspense accounts are often used for the following types of transactions:
* Deposits or payments received from customers or vendors that cannot be immediately identified or matched to an invoice or purchase order.
* Checks or payments issued to vendors or employees that cannot be immediately matched to a purchase order or invoice.
* Cash overages or shortages discovered during a cash count.
* Discounts, refunds, or other adjustments that cannot be immediately allocated to a specific account.
* Errors in accounting entries that need to be corrected.
Why is Suspense Account opened?
Suspense accounts are opened for the following reasons:
* To temporarily hold funds that cannot be immediately allocated to a specific account.
* To prevent errors in accounting entries.
* To maintain the accuracy and integrity of the financial records.
How is Suspense Account closed?
Suspense accounts are closed when the necessary information or documentation becomes available to determine the correct account for the transaction. This may involve matching a deposit to an invoice, researching a check to determine the vendor or employee it was issued to, or correcting an accounting error.
Once the correct account has been determined, the amount in the suspense account is transferred to that account. If the suspense account has a credit balance, the amount is transferred as a debit; if the suspense account has a debit balance, the amount is transferred as a credit.
Example of Suspense Account
The following is an example of how a suspense account may be used:
A company receives a deposit of $100 from a customer, but the invoice associated with the deposit has not yet been recorded. The company creates a suspense account called "Deposits in Suspense" and records the deposit in that account.
When the invoice is recorded, the amount in the "Deposits in Suspense" account is transferred to the "Accounts Receivable" account.