A customer paid an outstanding $1,000 invoice in two partial payments of $500. Patriot’s online accounting software is easy to use and made for the non-accountant. They ensure that you account for all transactions accurately in your books. If the credits in the trial balance are larger than debits, record the difference as a debit. If the debits are larger than credits, record the difference as a credit.

A suspense account will be managed by the finance team and serve as a catch-all for unknown amounts. The purpose of a suspense account is to hold amounts that cannot be categorised, so it would not be possible for each department to have a suspense account. If you could identify the department, you would not need to place the payment in a suspense account.

Example #1: Receiving a partial payment

It will be moved onto the ledger once the commission has been paid in full following the completion of work. As can be seen the original entry to the suspense accounts is reversed, so the balance on the account is zero. Having been correctly identified, the interest expense account now contains the correct amount of 1,000. You would open a suspense account and add the $100 as a credit, and then debit your Cash account for the same amount (this ensures everything is in balance, as per the accounting equation).

In this case, you may choose to have a single suspense account entry until you figure out where the transaction should be recorded. While a suspense account adds flexibility to updating a ledger, with an American Express® Business Gold Card you get greater flexibility on when the cash for supplier payments actually leaves your business. You get up to 54 days to clear your Card balance, so you can keep your money in the account for longer¹.

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A suspense account is also known as a difference in book account or an error account. In this article, we will learn in-depth about the suspense account including its definition, examples, how to create, how to record, closing procedure, and much more. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on https://www.bookstime.com/ the due date. If you’d prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card. Have questions about setting up a suspense account, or any other type of account? This is because unallocated transactions get more difficult to reconcile with passing time, especially if there is insufficient documentation, and the account balance could grow uncontrollably.

A suspense account is a temporary holding account for a bookkeeping entry that will end up somewhere else once the final and correct account is determined. Suspense accounts are essential tools in accounting that enable organizations to temporarily hold and investigate unresolved transactions or discrepancies. They serve as a means to ensure the accuracy and integrity of financial information by providing a temporary holding place for items that cannot be promptly allocated or reconciled within designated accounts. Clear and consistent documentation is crucial in preventing suspense account occurrences. Organizations should establish guidelines and standards for documenting all financial transactions, including supporting evidence, such as invoices, receipts, or contracts. Well-documented transactions reduce the likelihood of errors, facilitate reconciliation processes, and expedite the resolution of any discrepancies.

Process of Handling Suspense Accounts

You might be unsure about which department of your business to charge, so you place the amount in a suspense account. If you’re unsure about where to enter a transaction, suspense account open a suspense account and talk to your accountant. Use a suspense account when you buy a fixed asset on a payment plan but do not receive it until you fully pay it off.

After you make the final payment and receive the item, close the suspense account and open a separate asset account. Just like the mortgage suspense account, investors keep their money in this account until such time that they are ready to purchase new investments. When accounts are closed, so should suspense accounts and the suspense balance must be brought down to a zero. Until corrected and the payment has already been cleared from the bank of the company, the transaction stays in the suspense account.

The liability suspense account

One rogue entry into your accounting software will at best disrupt your financial reporting and at worst cost your business money. 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. The aim of a suspense account in balance sheet terms is always to be a balance of zero, as this means that everything has been correctly recorded, and there are no anomalies unaccounted for. One situation in which having a suspense account comes in handy is when you are preparing your trial balance. The trial balance is the closing balance of a given account, calculated at the end of a certain reporting period.

• An illustrative example 
  Michelle runs a small business and does her own bookkeeping but does not have very much experience in this yet.
• The difference in debit and credit balance can result in creation of a suspense account.
• The most important point to understand is that transactions are recorded in the suspense account only temporarily and need to be relocated to their correct permanent accounts as soon as possible.
• Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping.
• Suspense accounts are considered as general ledger accounts and can either be an asset or a liability depending on the transaction.