What is a Suspense Account?
The suspense account in accounting is a general ledger account used to make temporary unclassified transaction postings until the correct account classification can be determined using transaction analysis.
The suspense account allows the double entry to be maintained at the time of posting when the correct account is unknown. When the transaction classification has been determined, the amount needs to be transferred 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. At the end of each accounting period a suspense account reconciliation needs to be carried out and any balance investigated so that correcting adjustments can be made before the final financial statements are issued.
Suspense Account Examples
Suspense account accounting is used when the correct classification cannot be determined at the time of posting. Suppose for example, an unidentified cash payment of 1,000 has been made. The suspense accounts entry journal to post the unclassified transaction would be as follows:
The debit of 1,000 is unidentified and is posted as unclassified to the suspense account in the balance sheet.
At a later stage transaction analysis shows that the amount related to the payment of interest, and a correcting interest suspense account entry is made as follows:
The original entry to the suspense accounts has now been 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.