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What is suspense account

shwetha (CWA learner) (447 Points)

05 September 2011

what is suspense account. When we use it? for what purpose we use it. plsss clarify.

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7 Replies

Rahul (Chartered Accountnat CS) (1580 Points)
Replied 05 September 2011

At the time of preparation of Trial balance when the 2 sides i.e. debit and credit do not match then the accountant transfers such deviation to a fake a/c called suspense a/c till the time the reason of such deviation is not found out.

It is just a dummy account

it may have debit or credit balance

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ashish gupta ( student) (1922 Points)
Replied 05 September 2011

fine answer by Rahul. In practical situations when we know only one a/c and dont know abt the other a/c for a transactions then we pass the entry with a suspense a/c and as soon as the other a/c is known we pass the transfer entry from the suspense a/c to the account concernd.

shwetha (CWA learner) (447 Points)
Replied 06 September 2011

Well Rahul and Ashish. My doubt is cleared. Can pls clarify this also. From this suspense account only we pass rectification entries? Because generally T/B doesnt match because of mistakes na. These mistakes we are tranfering to suspense a/c. Pls clarify.

Sean Kingston (Business) (51 Points)
Replied 06 September 2011

Hey there,

This very nice question I have received. Suspense has the same meaning as enumerated in the dictionary, as far as it relates to accounting. Suspense account is an account created if the nature of receipt or expenditure is not immediately known. The created suspense account is reversed when the nature of receipt or expenditure is sorted out.

Thanks a lot
Sean Kingston

ashish gupta ( student) (1922 Points)
Replied 06 September 2011

yes you are thinking in right way shwetha

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Bhaskar Unnikrishnan CPA CMA (Accounts / Administration) (414 Points)
Replied 07 September 2011

Dear Ashish / Rahul,

Wonderful expalantion mates. I have a question, When any error in accounting treatment / entries are found out in subsequent year, will be transferred to suspense account right? Please clarify: Answer is it would be transffered to P&L Adjustment Account, not suspense account...

Dear Swetha,

(Because generally T/B doesnt match because of mistakes na. These mistakes we are tranfering to suspense a/c. Pls clarify)

Further to explanation from Ashish and Rahul:

The logic of trial balance is, for every debit entry, there would be a credit entry. If the total of the debit column does not equal the total value of the credit column then this would show that there is an error in the nominal ledger accounts. This error must be found before a profit and loss statement and balance sheet can be produced. When the reason for these mismatches can be identified in current financial year, it should be rectified by contra journal entries. Unless the difference in balance is quickly located, the difference would be transffered to Suspense Account. If the Debit side is short, suspense account is debited and vise versa. If any errors and identified in subsequent year, in order to avoid effecting it on the figures of current year, will be transferred to P&L Adjustment account.

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shwetha (CWA learner) (447 Points)
Replied 07 September 2011

Excellent Mr. Bhaskar. Ur information is an extention to Ashish and Rahul replies. Thanks to all in participating the discussion. I need same support from u people in my way of preparation. I m so happy to met experts like u. Thanks again.