What is a suspense account?

When the process is finished, the accountant may finally terminate the https://www.bookstime.com/articles/suspense-account and transfer the money to the correct account. A suspense account is a temporary holding account to record transactions that are subsequently reallocated to other accounts. However, if the clearing of suspense accounts is not appropriately monitored and managed, there can be a risk of erroneous financial results and fraudulent activities. As the name suggests, a suspense account is an account that temporarily records amounts that are yet to have their proper accounts determined. In balance sheet terms, a suspense account is not ideal, as it can prevent you from accurately balancing the books.

• Partial payments can come in many different forms, such as a deposit on a real estate transaction or an upfront payment for a service order.
• In any case, every effort should be made to eliminate all unidentified transactions held in the suspense account by the end of the fiscal year, otherwise the annual financial statements will be inaccurate.
• Close the gaps left in critical finance and accounting processes with minimal IT support.
• 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.

Brokerage firms also use suspense accounts to, for example, keep track of a customer’s money between the time they sell an investment and when they reinvest that money. A suspense account is an account in the general ledger in which amounts are temporarily recorded. A suspense account is used when the proper account cannot be determined at the time the transaction is recorded.

Suspense account meaning

These payments are thus kept on hold and get transferred to a suspense account until this problem is rectified and the invoice is determined. Identifying an amount shouldn’t be an impossible task (if so, it may suggest fraud). Remember to consider issues like an inaccurate recording of funds (for example, money going into the cash account and not the sales account) and unrecorded expenses, which can be traced back to their invoices. When the trial balance shows credits exceeding debits, the difference should be recorded as a debit to reflect the temporary nature of those funds. After an entry in the suspense account is clarified, it will be assigned permanently to the proper account. For example, an entry for a payment will be cleared from the suspense account and entered into the accounts receivable once the corresponding invoice has been identified and the details about the transaction are known.

Businesses also use a suspense account to record transactions when there are delays between the receipt of money and the proper assignment in the ledger. 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. Working capital, cash flows, collections opportunities, and other critical metrics depend on timely and accurate processes. Ensure services revenue has been accurately recorded and related payments are reflected properly on the balance sheet.

Suspense account

A customer paid $1,000 in cash without specifying which invoice the payment relates to. There is an uncertainty regarding transaction classification at the time of its entry into an accounting system. In short, a https://www.bookstime.com/ is the point of last resort when you need a short-term holding bay for financial items that will end up somewhere else once their final resting place is decided. As soon as possible, the amount(s) in the suspense account should be moved to the proper account(s). The amount of money held in suspense account is referred to as the “suspense balance.” There are several situations for holding an entry in a suspense account.

• In balance sheet terms, a suspense account is not ideal, as it can prevent you from accurately balancing the books.
• Suspense accounts allow transactions to be posted before there is sufficient information available to create an entry to the proper account or accounts.
• Ideally, a business will have a zero balance in the suspense account—or no suspense account listed—in its financial statements.
• The unclassified transactions temporarily “parked” in this account are a “suspense” that we need to investigate and relocate into their correct accounts accordingly.
• 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.