It is required that the general ledger of your company depicts the details of all finances of your company and this includes the details of your suspense account as well. To ensure the seamless working of financial details of your business, we have got you covered here with an explanation that will develop an understanding of what is suspense account, the most common reasons to use the suspense account, and why is it important to use this account.
Let’s begin with the basic and gather provided information about the introduction of a suspense account.
What Is Suspense Account?
The name depicts the meaning of the suspense account itself. It is considered a temporary account that is used to maintain a record of the amount of money that is waiting for a proper account determined for them. A suspense account is not considered very ideal according to the terms and conditions of the balance sheet. The reason behind not seeing it as an ideal account is because this prevents error-free calculations and this way the balancing of books and records is not possible at all.
Moreover, the example of using a suspense account is just like putting an official document in the pile of “to file”. Typically the suspense account is like a trial balance to maintain a check of a double-entry balance sheet. In some cases when an amount of money is not determined to go in a specific account, a suspense account is used to keep this money until the error is resolved. After that process, the amount of money is placed in the relevant account.
Several people are confused about the suspense account that it can keep the money forever, but that is not the case. The amount can only be kept until the right account is not determined and issues are rectified. Large companies tend to clear their suspense accounts quarterly, however, the small businesses can do it more frequently.
Common Reasons to Use Suspense Account
The most common reasons are considered to use a suspense account are listed below for you:
- To match partial payments up to invoices
- If your assets are yet received or not
- Unknown payees
To match partial payments up to invoices: It is very tricky to handle the partial payments and then ensure to match them with the invoices. It does not matter if the payments are intentional or accidental. The use of a suspense account is beneficial here that helps you to keep the money until the issues are sorted out and you are clear about where to keep the money.
If your assets are yet received or not: There are several examples of such assets that you are unable to receive until you clear the complete payment. In such a case, you can keep the instalment amount in a suspense account and then make the payment when your amount is complete for the asset.
Unknown payees: In the case of unknown payees when you have paid but the details are unsure as to who has sent the payment. Such an amount can be kept in the suspense account. After confirming from the customers when you are finally sure about which customer has sent it. The amount can be then moved to the right and relevant account.
Why Is Suspense Account Necessary?
The use of a suspense account is important because it is considered an instant help to figure out the situation when you have a transaction received and you are unsure about the customer who has sent it. Such payments can not be part of the expenses and invoices.
The use of a suspense account is beneficial here as it helps to keep this amount separate until you figure out the right and appropriate account for this amount of money. The best practice to be organised the transactions and payments that are unidentified is to keep them separate from the other payments. Later such an issue can be resolved with ample time and focus. As it is not wise for a businessman to keep the unidentified amount of money involved with the other payments. The use of a suspense account works as a temporary place to keep such unidentified amounts until they are moved to the right accounts.
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The Bottom Line
Finally, the discussion of what is suspense account has come towards the wrapping up, we can say that a suspense account is often misunderstood by the businessmen, however, it turns out to be the most beneficial when you have some unidentified transactions.
We hope these few minutes of reading have helped to develop a better understanding of what suspense accounts for and the situations when it is the most beneficial.
Disclaimer: The information about what is suspense account provided in this blog including text and graphics is general in nature. It does not intend to disregard any of the professional advice.