Suspense accounts, however, are more typically used when there is some question about the transaction that needs 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. The suspense account is a useful tool for ensuring that all transactions are recorded in the accounting records, even if the details of the transaction are not yet known.

• Then, you can transfer the completed transaction to the general ledger to display the total revenue.
• They ensure that you account for all transactions accurately in your books.
• By doing so, you can identify the sender of payments or invoices and record their revenue and expense in the appropriate sections of your clients ledger.
• Unlock full control and visibility of disputes and provide better insight into how they impact KPIs, such as DSO and aged debt provisions.
• It is possible to also have a liability suspense account, to contain accounts payable whose disposition is still being decided.

Firstly, it helps you check when the amount of a transaction is subject to a legal dispute. Secondly, when there’s a transaction booking before, there’s an allocation of reasonable costs or profit centres. Thirdly, when an in-transit transaction, the money is transferred to another person, but it hasn’t been deposited into the account yet.

When to use a suspense account

Let’s suppose a company receives a cash sum of $500 but it cannot figure out who the money is from or what it is for. They ensure that you account for all transactions accurately in your books. Similarly, if a borrower pays more than they owe for a particular month—without designating how those funds 2020 tax changes for 1099 independent contractors should be applied—the servicer may put the extra money into a suspense account for the time being. CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner.

• There can be lack of surety regarding a payment made by a client with respect to the accounts receivable balance.
• If your client cancels the order or doesn’t receive it, you can record the expense in a suspense account to keep it apart from the total expenses, making it simpler to change or remove the payment from the account.
• Save time, reduce risk, and create capacity to support your organization’s strategic objectives.
• In the business world generally, a suspense account is a section of a company’s financial books where it can record ambiguous entries that need further analysis to determine their proper classification.
• We are here for you with industry-leading support whenever and wherever you need it.

“A control account like this would typically sit within your trial balance. You would look to clear it down at the end of each accounting period you report on, be it monthly, quarterly, or annually.” Even if there is no timeline set by regulatory authorities for the clear-out process, businesses routinely carry out monthly or quarterly suspense account reconciliations. The bookkeeper is unable to balance the company’s trial balance, with the credit column exceeding the debit side by $500. The suspense account can hold the difference that led to the trial balance not balancing until the discrepancy is rectified. The rules that mortgage servicers must follow are spelled out by the Consumer Financial Protection Bureau, which enforces the federal Real Estate Settlement Procedures Act. The servicer must also explain what the borrower needs to do in order to have that money applied to their mortgage payment.

What is your risk tolerance?

In these situations, a suspense account is passed to match the outstanding dues with payments and verify them with the client. Sometimes, there needs to be clarity regarding payments due by a client because of unclear invoices. These payments are thus kept on hold and get transferred to a suspense account until this problem is rectified and the invoice is determined.

Example #2: You’re not sure how to classify a transaction

There are times when the company receives money even before they make a contract or a policy. Lastly, there’s a transaction from an invalid account that has invoiced payments because of some issues. No, you do not need to close your suspense account as long as you are keeping track of uncorrected transactions. If your business experiences a high rate of change in its accounts, though, it is best practice to close the suspense account periodically and transfer all uncorrected entries to their respective ledger accounts. A suspense account is a temporary holding account to record transactions that are subsequently reallocated to other accounts. However, if the clearing of suspense accounts is not appropriately monitored and managed, there can be a risk of erroneous financial results and fraudulent activities.

The Suspense Account – Everything You Need to Know

It is important to hold unidentified amounts in a separate account to organise and identify them later more quickly. Such unexplained sums will not be left in transactions which have already been established. The suspense account offers them a temporary position before proper placement is possible. If an expense is incurred, the benefit of which is received by more than one account, such an expense can temporarily be placed in a suspense account. Later, the entries can be transferred to the relevant accounts at the appropriate ratio.

Why is a suspense account important?

A suspense account is an account used temporarily to carry doubtful entries and discrepancies pending their analysis and permanent classification. Because transactions in a suspense account are unallocated, the account should be considered temporary. A partial payment occurs when a customer does not pay the full amount owed for a transaction. Partial payments can come in many different forms, such as a deposit on a real estate transaction or an upfront payment for a service order. Once the accountant has enough information, they can reassign the transaction out of the suspense account and into the appropriate account within the general ledger.

What Are the Disadvantages of a Suspense Account?

Without this transaction, the debit and credit columns would not balance. If the credit side had been short, the suspense account would have been added to that column. For efficiency purposes, it is also helpful to track and analyze the entries over time to minimize the reoccurrence of any transactions that cause frequent unnecessary postings into the suspense account.