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

These records temporarily hold money until an activity generates a process to disperse or apply the money. Once accountants have determined the proper classification of the journal entries, it will be recorded to their correct accounts and removed from suspense accounts. A suspense account is needed because the appropriate account was not determined at the time the transaction was being recorded. As long as a transaction is found in a suspense account and hasn’t yet been transferred to its permanent account, it is placed in the suspense account, acting as its holding account for the transaction.

Suspense Account means the account established by the Trustee for maintaining contributions and forfeitures which have not yet been allocated to Participants. Our Highly Experienced Team recommends Products or Services after thoroughly researching them to ensure we provide an unbiased, comprehensive solution define suspense account for your Home or Business. We Stand by our Reviews and when you Purchase something we’ve Recommended, the commissions we receive help support our Staff and our Research Process. A few weeks later, Customer A has sent the payment details for the above receipt with a reference to Invoice # 61109xyz.

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Mortgage vendors then keep the first payment in the suspense account until the second payment is received for the month and the payment is complete and recorded to its correct account. The suspense account can have a debit or a credit balance, depending on which side the trial balance is short. Using a suspense account allows the accountant to review each individual transaction in the account before they clear it. The objective here is to shift the transaction to its original/permanent account in time. It’s important to keep unidentified amounts in a separate account in order to stay organised and identify them later more easily. These unmatched amounts should not be left in amongst your already-identified transactions.

Standardize, accelerate, and centrally manage accounting processes – from month-end close tasks to PBC checklists – with hierarchical task lists, role-based workflows, and real-time dashboards. Patriot’s online accounting software is easy to use and made for the non-accountant. When you record uncertain transactions in permanent accounts, you might have incorrect balances. Suspense accounts help you avoid recording transactions in the wrong accounts. You also avoid failing to record a transaction because of missing information. You might be unsure about which department of your business to charge, so you place the amount in a suspense account. If the credits in the trial balance are larger than debits, record the difference as a debit.

You buy a fixed asset but don’t receive it until it’s paid off

Some jurisdictions have rules and regulations regarding suspense accounts because they are considered a control risk. Therefore, it is vital to have a process in place to clear out the suspense account on regular basis so that all of the suspense account entries are moved into their designated accounts to zero out the suspense balance. If the credits in the trial balance exceed the debits, record the difference as a debit–and vice versa–to make both columns of the trial balance report balance. The suspense account can hold the difference that led to the trial balance not balancing until the discrepancy is rectified. Let’s suppose you have been alerted that a remittance someone sent you from abroad is ready for withdrawal. Until you actually make the withdrawal from the agent or financial institution, the remittance money may be stored in their suspense account.

• Just like the mortgage suspense account, investors keep their money in this account until such time that they are ready to purchase new investments.
• 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.
• Otherwise, the amounts in the account can grow to quite substantial proportions, and be very difficult to deal with months later, especially if there is minimal documentation of why transactions were initially placed in the account.
• The bookkeeper is unable to balance the company’s trial balance, with the credit column exceeding the debit side by $500.
• Brokerage suspense accounts act as funds for investors who are planning to reinvest their money and are yet to decide which investments they wish to go ahead with.