While recording a financial transaction, you might have stuck to a situation wherein you are unable to identify missing information, could be an amount to be recorded or account head where to be recorded.
What is the solution to this? – Should you stop your work? – What can youdo?
Answer to this problem is: Use a Suspense Account
Important: This is temporary parking account - helping you not to stop work and it gives you time to collate information for the transaction to be re-classed to correct Asset/Expense or Liabilities/Revenue account. Which close this account to zero under perfect circumstances?
Position of Suspense Account in Chart of Accounts –
You can create it under any of four main account groups – Assets, Liability, Revenue or Expenses.
Normally it is created under either of two Liability or Expenses.
Advantages of having a Suspense Account
1. It acts as clearing account which earmark all problem transactions at single location which needs further investigation.
2.When doing write-up work, Suspense accounts let you complete work without interruption but still protect your client by earmarking items that require special attention.
3. An amount posted to a Suspense account is rarely overlooked. If an amount is posted to, say, Miscellaneous
Expense or Miscellaneous Income, there are chances that it will be missed because the balance in these accounts includes other amounts. These special transactions can not be earmarked to stand out in the trial balance. Thus, the questionable amounts may never be moved to the correct accounts.
Article by: Alex Ahuja : Alex is working as Team Leader with Actuit
