There are diverse uses for suspense accounts. One important use of a suspense account is to bring the trial balance into agreement.

Two other notable uses are discussed in this article.

Use 1

If a bookkeeper is unsure about which account to debit or credit in a transaction, they can temporarily place the entry in a suspense account.

Later, when they receive more information, they can transfer the entry from the suspense account to the correct account.

Example

A calculator is purchased for $750 in cash. The bookkeeper is unsure whether to debit the office machines account or the electronic appliances account. He later decided to place it in the office machines account.

First Entry

Dr. Suspense account: $750
Cr. Cash account: $750

Subsequent Entry

Dr. Office machines account: $750
Cr. Suspense account: $750

Use 2

If an expense is incurred, the benefit of which is received by more than one account, such an expense can temporarily be placed in a suspense account. Later, the entries can be transferred to the relevant accounts at the appropriate ratio.

Example

A transport bill of $8,500 is paid in cash. Later, the decision is made to charge 4/5 of it to carriage inward and the rest to carriage outwards.

First Entry

Dr. Suspense account: $8,500
Cr. Cash account: $8,500

Subsequent Entry

Dr. Carriage inward account: $6,800
Dr. Carriage outward account: $1,700
Cr. Suspense account: $8,500

Frequently Asked Questions

What is the difference between a suspense account and a running account?

A running account can have both debit and credit balances. A suspense account cannot have a debit balance, it always shows a credit balance.

What is the purpose of setting up a suspense account?

The main purpose of setting up a suspense account is to keep track of temporary transactions that have not yet been posted to the ledger account. These temporary transactions are "suspended" or held in suspense until they can be identified with a specific ledger account.

What is the difference between adjusting entries and suspense accounts?

Adjusting Entries are used to correct mistakes, whereas suspense accounts are useful for temporarily holding transactions until there is enough information to post them. For example, if a bookkeeper is unsure about which account to debit or credit in a transaction, he/she can temporarily place the entry in a suspense account until they receive more information.

Do I need to close my suspense account?

No, you do not need to close your suspense account as long as you are keeping track of uncorrected transactions. If your business experiences a high rate of change in its accounts, though, it is best practice to close the suspense account periodically and transfer all uncorrected entries to their respective ledger accounts.

Which account number should I use for my suspense account?

A suspense account uses an account number greater than 99. For example, if your company's opening ledger has account numbers 1-98, the next account number available to your business will be 100. However, it is recommended to keep a minimum of 25 ledger accounts in order to avoid errors when posting entries.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.