What Is a Suspense Account? How It Works, Types, and Example

suspense account

The servicer must also explain what the borrower needs to do in order to have that money applied to their mortgage payment. You might be unsure about which department of your business to charge, so you place the amount in a suspense account. You might receive a payment but be unsure which customer paid you. If you don’t know who made the payment, look at your outstanding customer invoices and find which one matches the payment amount. Contact the customer to verify that it’s their payment and the right invoice. Later, you decide to bill the supplies account of the purchasing department.

suspense account

All items should be eliminated by the end of the fiscal year. Otherwise, a company is issuing financial statements that contain unidentified transactions, and which are therefore incorrect. Regularly review the items in a suspense account, with the objective of shifting transactions into their appropriate accounts as soon as possible. Accordingly, there should be a daily measurement of the balance in the suspense account, which the controller uses as the trigger for ongoing investigations.

What Is a General Ledger?

A suspense account can also hold information about discrepancies as you gather more data. Similarly, if a borrower pays more than they owe for a particular month—without designating how those funds should be applied—the servicer may put the extra money into a suspense account for the time being. It acts as a temporary location for storing unidentified transactions and once the amount is properly identified, it can be moved to the appropriate ledger account.

Despite its mysterious connotations, “suspense” in this case simply refers to the fact that a transaction or its designation in a company’s books has been suspended temporarily, pending some further action.

Mortgage Suspense Accounts

A https://adprun.net/classified-balance-sheet-financial-accounting/ is essentially a bookkeeping technique for keeping track of funds for a brief period until particular issues are resolved. A business can use a suspense account to record payments it has received but that can’t be properly accounted for until certain missing information (such as an invoice number) is obtained. In mortgage servicing, it is a way for the servicer to record incomplete monthly payments until the borrower has made the payment in full. 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. Suspense accounts in a company’s general ledger typically contain entries where there are uncertainties or discrepancies that need to be resolved.

suspense account

While there is no definitive timetable for conducting a clearing-out process, many businesses try to regularly accomplish this on a monthly or quarterly basis. A suspense account is an account of the general ledger that is used for the temporary recording of business transactions. The need for a suspense account arises due to the inability to identify the appropriate ledger account for the recorded transaction. Eventually, you allocate entries in the suspense account to a permanent account. There is no standard amount of time for clearing out a suspense account.

What Is the Difference Between a Suspense Account and a Clearing Account?

A suspense account may also be established if further information is needed to finalize the transaction or if there are other complications that need to be resolved. In mortgage servicing, the servicer can use a suspense account to park funds temporarily if a borrower has made only a partial payment for that month. In investing, a suspense account is a type of brokerage account where a customer’s proceeds from selling an investment may be recorded until the customer uses the money to invest in something else. A trial balance is the closing balance of an account that you calculate at the end of the accounting period. When debits and credits don’t match, hold the difference in a suspense account until you correct it. If it’s an asset in question, the suspense account is a current asset because it holds payments related to accounts receivable.

  • A suspense account could also be a liability if it holds accounts payables that you don’t know how to classify.
  • A suspense account can also hold information about discrepancies as you gather more data.
  • The following illustrative example is not representative of what you would be asked to do in the exam but should help to give you a better understanding of how errors might occur and how they can be investigated and corrected.
  • On 1 September 20X8, Michelle had a balance outstanding owed to one of her suppliers of $400.

To close the Five Signs It’s Time to Explore Outsourced Accounting Services, credit the suspense account and debit the supplies account for the purchasing department. When you get the information you need, reverse the suspense account entry and make an entry in the permanent account. This closes out the suspense account and posts the transaction to the correct account.

SHARE
About Author

Carla Sofia Guerreo Sanchez

Leave a Reply

Your email address will not be published. Required fields are marked *