Suspense account
A suspense account is a temporary accounting ledger maintained to record and track the differences in a total of debit and credit columns of trial balance.
Modern accounting applications based on computerized systems ensure that all the transactions being posted and recorded to the system are complying with the rules of double-entry and are equally balanced with each other.
The software does this by automatically capturing and posting data from daybooks or transaction documents into the ledgers. Further computerized systems do not allow any unbalanced/ unequal journal vouchers from being posted in ledgers. In case of recording any mismatched accounting entry, the system either does not post/ save that accounting entry or keeps alerting the users that entries are not balanced.
However, before the use of computerized accounting systems and through manual accounting systems nowadays, if there is a difference in the total of debit and credit columns of trial balance prepared at the end of the accounting period and it does not agree, a temporary ledger account is opened as a suspense account.
A suspense account is a temporary account created to balance the trial balance. The total of the debit side of the trial balance is equated to the credit side and the difference is posted as the opening balance of the suspense account. For example, the total debit column stated an amount of $ 1,350,000 whereas the total credit column became $ 1,375,000 resulting in a credit difference of $25,000. The amount of $ 25,000 will be posted on the debit side of the Suspense account, resulting in the total of both debit and credit columns to an amount of $1,375,000 and agreement of trial balance.
After provisional balancing of the trial balance, financial statements are prepared with the suspense account while the difference in the trial balance is thoroughly examined. The accountants strive to identify the difference posted into the suspense account and every one-sided error identified will be adjusted by posting differences in the relevant ledger with counter entry into the suspense account until the closing balance of the trial balance becomes zero.
Accounting Entries in Suspense Accounts
Let us assume as an illustration that during the tracing of errors, it was identified that the salary expense for an amount of $ 475,000 was wrongly entered as $457,000. Upon identification of a one-sided error of transposition, the following correcting journal entry will be posted,
Dr. Salary Expense ($475,000-$457,000) $18,000
Cr. Suspenses Account $18,000
One-sided transposition error being rectified
The above Journal Entry will result in the correct total expense of $475,000 along with the reduction in the balance of the suspense account from $25,000 to $7,000. The remaining balance of $7,000 needs further inquiries.
However, if all the efforts to find out the error have been made and there is still remaining balance at the suspense account (which shall be very rare) the suspense account is recorded in the balance sheet depending upon the closing balance.
Note: It is important to note that if you are preparing a trial balance during the exam, students shall not use a suspense account until the examiner specifically has asked for the creation of a suspense account. In practical terms, it is also not a practice to record and report a suspense account in financial statements.
