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What is a suspense account ? Example of Suspense Account.

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The suspense account is a temporary account in which the difference in a trail balance is placed and is wiped off when the errors are located and corrected.The Suspense account balance will be placed on that side of the trail balance which is found to be shorter.

In another way, Suspense account is that account which is used to record the transactions temporarily.There might be some transactions; its nature is unknown.We don’t know the exact account to be debited or credited. In such cash we record such transactions into Suspense account.

Accounting treatment: The balance of suspense account will be shown on the balance sheet; If debit balance, on the asset side and if credit  balance on the liability side. However,the suspense account is only a temporary device which should not be allowed to remain in the books for long.Maximum effort shall be taken to find-out the exact nature of such transactions  and clear the suspense account before the end of the Financial Year. If that fails,In next accounting period therefore;attempts must be made to discover the errors which caused difference in trail balance.

Examples of Suspense Account Transactions.

Found an unknown credit in bank account: Such amounts may deposited by one of your customers who is due to you. He never informed about the deposit and you could not identify the transaction.In such case you will credit the suspense account with the expectation that you will identify it on a later time.

In the above example money is credited in your bank account.

Debit – Bank account.

Don’t know who is the depositor, or nature of such credits, as a result

Credit – Suspense Account

The correction of the error

When you find-out the error,you have to post the entry into right account. To rectify the errors and close the suspense account do the following entry in the books.

Debit – Suspense account –  to close the suspense account

Credit – Customer Account – to post the entry into the right account.

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