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Wednesday, December 23, 2009

Suspense Accounts

Suspense accounts, as well as being used to correct some errors, are also opened when it is not known immediately where to post an amount. When the mystery is solved, the suspense account is closed and the amount correctly posted using a journal entry.

Suspense accounts might contain several items

If more than one error or unidentifiable posting to a ledger accounts arises during an accounting period, they will all be merged together in the same suspense account. In deed, until the causes of the errors are discovered, the bookkeepers are unlikely to know exactly how many errors there are.

There is a balance on a suspense account, together with enough information to make the necessary corrections, leaving a nil balance on the suspense account and correct balances on various other accounts. In practice, of course, finding these errors is far from easy.

Another use of suspense accounts occurs when a bookkeeper does not know in which account to post one side of a transaction. Until then mystery is sorted out, the credit entry can be recorded in a suspense account.

A typical example is when the business receives cash through the post from a source which cannot be determined. The double entry in the accounts would be a debit in the cash book, and a credit to a suspense account.

Suspense accounts are only temporary

It must be stressed that a suspense account can only be temporary. Posting to a suspense account are only made when the bookkeeper does not know yet what to do, or when an error has occurred. Mysteries must be solved, and errors must be corrected. Under no circumstances should there still be a suspense account when it comes to preparing the balance sheet of a business. The suspense account must be cleared and all the correcting entries made before the final accounts are drown up.

None should exist when it comes to drawing up the financial statements at the end of the accounting period.


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