Definition
Accounting is about hard numbers, but human errors naturally occur from time to time. If you own a business, you may wonder how accountants handle these errors and accurately balance your books despite them. Often, the bookkeeper can simply scan the books for the culprit and correct the problem. When they can’t identify the error, they rely on a tool called the suspense account. You will likely see a suspense account come up on your business’s Trial Balance, so it is worth understanding how it functions to help balance your books and secure your bottom line.
A suspense account is used to address errors and uncertainties in the ledger. When adding up the Trial Balance, your bookkeeper may notice inconsistencies that prevent the columns from balancing. They will then insert a suspense account, which records and temporarily stores these discrepancies. Once the accountant identifies the problematic transaction, they can transfer that entry out of the suspense account and into the appropriate account. In doing so, the accountant resolves the error and is able to balance your books. This process is known as “zeroing” the suspense account, and should be performed on a regular basis. Note that a suspense account most commonly takes the form of a current asset or current liability. A suspense account can also take the form of a credit or a debit, depending on what is needed to even out the Trial Balance.
When to Use Suspense Account
The Suspense account is like a messy kitchen drawer. Accountants use it to store transactions when they are not sure what to do with them – temporarily, of course, because these errors must be resolved in order to balance the books. There are several types of errors in accounting that prevent balanced books and which necessitate the insertion of a suspense account.
- Part omission (i.e. transaction is only partially recorded)
- Part original entry (e.g. one account is debited for $78 and other is credit for $87)
- Repetitive entries in debit or credit
- Uneven Trial Balance