The suspense account in accounting is a general ledger account used to make temporary unclassified transaction postings until the correct classification can be determined using transaction analysis.
The suspense account maintains the double entry at the time of posting when the correct account is unknown. Subsequently when the business determines the transaction classification it transfers the amount from the suspense account to the correct account.
Suspense accounts are temporarily classified as a balance sheet account, usually under the heading of current assets or current liabilities depending on the normal balance. Consequently at the end of each accounting period the business carries out a suspense account reconciliation. Any balance is investigated so that correcting adjustments can be made before the final financial statements are issued. Accordingly irrespective of the issue resulting in the suspense account posting, at the end of the accounting period the account balance reduces to zero with correcting journal entries.
Suspense Account Examples
The business uses suspense account accounting when it cannot determine the correct classification at the time of posting. To illustrate suppose the business makes an unidentified cash payment of 1,000. In this case the posting of the unclassified transaction journal entry to the suspense account is as follows:
| Account | Debit | Credit |
|---|---|---|
| Cash | 1,000 | |
| Suspense account | 1,000 | |
| Total | 1,000 | 1,000 |
As can be seen the debit of 1,000 is unidentified and is posted as unclassified to the suspense account in the balance sheet.
Subsequently transaction analysis shows that the amount relates to the payment of interest, and a correcting interest suspense account entry is made as follows:
| Account | Debit | Credit |
|---|---|---|
| Interest expense | 1,000 | |
| Suspense account | 1,000 | |
| Total | 1,000 | 1,000 |
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.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.