An Overview of Suspense Account

An Overview of Suspense Account

When the accountants in an accounting firm in Johor Bahru is not sure about where they should store certain transactions, they will record them into the suspense accounts. After investigating and clarifying the objective of those transactions, they will transfer the transactions from the suspense accounts and put them into the correct account. Both debit and credit entries (Also see Accounting – Understanding Credit and Debit in the Business) can appear in suspense accounts.

Having suspense accounts can be very helpful compared to not making any records about the transactions until the accountants get enough information about them to create entries in the right accounts. If the accountants do not record those transactions in the suspense accounts first, there may be a lot of transactions that they could not record when a reporting period has ended. This may bring to inaccurate financial statements.

As an instance, one of your clients has paid you RM5,000 without specifying the invoice that he wants to make the payment. Before your accountant can confirm the invoice that he should charge the payment, he may put the RM5,000 in a suspense account temporarily by using the accounting entries:

– Debit RM5,000 to the cash account

– Credit RM5,000 to the suspense account

Then, your accountant will contact the client and ask which invoice he is paying. After identifying the invoice, the accountant will:

– Debit RM5,000 to the suspense account

– Credit RM5,000 to the accounts receivable account

On another day, your accountant receives an invoice from a supplier who charged you RM1,000 for the service provided. Your company need to pay for the invoice in 30 days. However, your accountant is not sure about which department should be responsible for the payment. So initially, he will record the invoice as follows:

– Debit RM1,000 to the suspense account

– Credit RM1,000 to the accounts payable account

The entries will record that invoice in the accounts payable system and your company need to settle the payment in 30 days. After discussing, the managers from various departments decide that the expense should be charged to the sales department in the office supplies account. Hence, the accountant will record the entries as follows:

– Debit RM1,000 to the office supplies account

– Credit RM1,000 to the suspense account

The accountants should review the items that they have recorded in the suspense account regularly so that they can transfer the transactions into the correct accounts as quickly as possible. If not, the amounts recorded in the suspense account may increase to a substantial proportion. This can be more difficult for the accountants to deal with, particularly if they did not keep enough records about the reasons why they put the amounts into the suspense account initially.

Therefore, the accountants should monitor the balances of the suspense account every day. Also, they can keep track of the types of transactions that they would always put into the suspense account. This is for them to improve the accounting system they are using so that the system can determine the items correctly and will no longer include them in the suspense account in the future.

You should categorise the suspense account as your current asset as this account will record payments associated with accounts receivable most of the time. Also, your company may have a liability suspense account for the accounts payable that the disposition is not yet been determined. In such a case, you should categorise the liability suspense account as your current liability.

As a business owner, you need to make sure that you have removed all the items in the suspense account at the end of a fiscal year (Also see Understanding Year-end Adjustments). If not, the financial statements that your company issues would contain unidentified transactions, thus cause the statements to be inaccurate.

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