A business generates many transactions throughout the course of its operations. Sometimes it may happen that the transactions may have some missing information or incorrect details were entered into records. But a business has to record every transaction, in such cases the use of a suspense account is recommended.
What is a Suspense Account
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.
The amounts or transactions that are moved to the suspense account are for very short duration as there is a need for proper investigation to determine the correct ledger account to which the recorded amount should be moved or posted.
Importance of Suspense Account
A suspense account is important in accounting as it helps filter out transactions that cannot be identified at the time of their recording. Such an account helps in keeping the record books clean and free from any errors.
It acts as a temporary location for storing unidentified transactions and once the amount is properly identified, it can be moved to the appropriate ledger account.
When to create Suspense Accounts
Suspense accounts need to be created in the following situations
1. During trial balance preparation: A suspense account is useful when the trial balance is being prepared and the debit and credit balance do not match. The difference amount can be transferred to a suspense account.
For credit balances larger than debit balances, the difference is recorded as a debit, and for debit balances that are larger than credit balances, the difference is recorded as a credit.
2. On receiving of partial payment: Sometimes it may happen that a client makes a partial payment and they are not sure for which invoice the payment was made, which leads to confusion about the payment. Such payments can be moved to the suspense account till the client is contacted and the invoice is identified.
3. Not sure who made the payment: It can happen that a payment is received but the business is not able to identify the customer from whom it is received. The best solution is to move the amount to the suspense account and check unpaid invoices from the record books and match the payment amount. Further clarity can be achieved by contacting the customer and verifying the payment details.
Benefit of Suspense Accounts
Following are some of the benefits of the suspense accounts in accounting.
1. It allows a temporary space for recording unambiguous transactions.
2. It helps keep the accounts books organised by separating the unidentified transactions.
This concludes the topic of Suspense Account, which is an important topic of Accountancy for Commerce students. For more such interesting articles, stay tuned to BYJU’S.