Suspense Account: Meaning, Entries & Example
Definition
A suspense account is a temporary account used to park an amount whose correct account is not yet known, or the difference in a trial balance that does not tally, until the error is found and corrected.
| Term | Suspense account |
|---|---|
| In Hindi | उचंत खाता |
| Area | Accounting |
| Search phrase | suspense account |
| Try it | Trial balance |
उचंत खाता — हिंदी में अर्थ
उचंत खाता एक अस्थायी खाता है जिसमें वह राशि रखी जाती है जिसका सही खाता अभी पता नहीं है, या तलपट (ट्रायल बैलेंस) का अंतर, जब तक गलती ढूँढकर ठीक न हो जाए।
When a suspense account is used
Two situations. First, the trial balance does not agree and the books must be closed: the difference is put into suspense so the trial balance tallies, and the errors are traced later. Second, money arrives in the bank with no clear sender or purpose — an unidentified NEFT, for example — and is parked in suspense until the customer is identified.
A suspense balance is a to-do list, not a home. Auditors question any amount that sits there at year end, and a large suspense balance usually means receipts are not being matched to customers.
Clearing it — rectification entries
Only one-sided errors pass through suspense: an amount posted to one account but not the other, a wrong total carried forward, or a figure posted with the wrong amount on one side. Errors of omission or of principle affect both sides equally and do not create a trial balance difference, so they are corrected without suspense.
Example
The debit side of the trial balance totals ₹4,95,000 and the credit side ₹5,00,000, so ₹5,000 is debited to Suspense A/c. Later a ₹5,000 purchase is found posted to the supplier but not to Purchases: Purchases A/c Dr ₹5,000; To Suspense A/c ₹5,000 — and suspense closes at nil.
Related tools and guides
Frequently asked questions
What is a suspense account?
A temporary account that holds an unexplained amount or a trial balance difference until the correct account is identified.
Is a suspense account an asset or a liability?
Neither by nature. A debit balance is shown on the assets side and a credit balance on the liabilities side, only if it cannot be cleared before accounts are finalised.
Which errors are rectified through a suspense account?
One-sided errors — posting to one account only, wrong casting of a subsidiary book, or wrong amount on one side.
Should a suspense account have a balance at year end?
Ideally no. It should be cleared once the errors or the unknown receipts are traced.
Related terms
- Accounts receivableAccounts receivable is the money customers owe a business for goods or services already supplied on credit. It is shown as trade receivables (debtors) under current assets.
- Accrual vs cash basis of accountingUnder the accrual (mercantile) basis, income and expenses are recorded when they are earned or incurred, whatever the payment date. Under the cash basis, they are recorded only when cash is actually received or paid.
- Balance sheetA balance sheet is a statement of what a business owns (assets) and what it owes (liabilities and owners' equity) on a particular date. Total assets always equal total equity plus liabilities.
- Cash conversion cycleThe cash conversion cycle (CCC) is the number of days between paying for raw material and collecting cash from the customer for the finished goods: days inventory outstanding plus days sales outstanding minus days payables outstanding.
- Contra entryA contra entry is a transaction between cash and bank accounts of the same business — such as cash deposited into the bank or cash withdrawn for office use — where both the debit and the credit side are cash or bank.
- Contribution marginContribution margin is selling price minus variable cost. It is the amount each sale contributes first towards fixed costs and then to profit; as a percentage of sales it is called the contribution margin ratio or P/V ratio.