Understanding how to properly use suspense accounts can help ensure your accounting practices are accurate and compliant. The brokerage suspense account is essential for managing the fluid nature of investments and transactions. It provides a buffer that safeguards both the investor’s assets and the brokerage firm’s integrity until the proper allocations can be made.
Potential for errors
Use a suspense account when you buy a fixed asset on a payment plan but do not receive it until you fully pay it off. After you make the final payment and receive the item, close the suspense account and open a separate asset account. If you don’t know who made the payment, look at your outstanding customer invoices and find which one matches the payment amount. Contact the customer to verify that it’s their payment and the right invoice.
When you receive the full payment from the customer, debit $50 to the suspense account. This closes the suspense account and moves the payment to the correct account. Let us understand how suspense account entries work and how it helps accounting teams with the help of a couple of examples. A suspense account is a temporary account where entries with discrepancies and doubtful factors are parked. Toward the end of the accounting period, all discrepancies are sorted and accounted for to their permanent entities. A suspense account is a general ledger account prepared in the following situations;1.
Imagine JKL Enterprises received a partial payment of $300 on a $1,000 invoice. The payment did not specify which invoice it was intended for, so it was temporarily held in a suspense account. This allowed the finance team time to clarify the details with the customer without affecting the accuracy of their accounts receivable. A suspense account is a temporary account used in the general ledger to hold transactions that require further investigation to determine their proper classification.
- The servicer must also explain what the borrower needs to do in order to have that money applied to their mortgage payment.
- By providing a detailed trail of records for each transaction, including the date, time, and user information, it supports organizations during audits.
- You might receive a partial payment from a customer and be unsure about which invoice they’re paying.
- When the trial balance does not tally due to unknown discrepancies, a suspense account is used to balance the books temporarily.
- There was one transaction whose nature could not be ascertained at recording.
Suspense accounts help you avoid recording transactions in the wrong accounts. You also avoid failing to record a transaction because of missing information. After you make corrections, close the suspense account so that it’s no longer part of the trial balance. If the credits in the trial balance are larger than debits, record the difference as a debit. If the debits are larger than the credits, record the difference as a credit.
Payments
Regardless of the issues in question, suspense accounts are cleared out once the problem is addressed, at which time the funds are promptly re-shuffled to their correctly designated accounts. At that point, the suspense account should achieve a balance of zero dollars. While there is no definitive timetable for conducting a clearing-out process, many businesses try to regularly accomplish this on a monthly or quarterly basis.
Do Mortgage Suspense Accounts Earn Interest?
In mortgage servicing, the servicer can use a suspense account to park funds temporarily if a borrower has made only a partial payment for that month. In investing, a suspense account is a type of brokerage account where a customer’s proceeds from selling an investment may be recorded until the customer uses the money to invest in something else. A suspense account is the general ledger account that the company uses for recording transactions temporarily. When recording those transactions, the accountant may be unsure of the type of account most appropriate to record those transactions. A suspense account on a balance sheet is a temporary holding place for transactions that are unclear or not ready to be classified into a definitive account. It ensures the balance sheet remains accurate while details are clarified or adjustments are made.
Accounting Ratios
By transforming reconciliation from a complex challenge into a streamlined operation, HighRadius empowers businesses to maintain accurate records effortlessly and focus on strategic financial management. In this blog, we will demystify what suspense accounts are, explore different types, and dive into examples that bring these concepts to life. You will also understand the potential challenges of using a suspense account and how you can combat those challenges. You might be unsure about which department of your business to charge, so you place the amount in a suspense account. If you’re unsure about where to enter a transaction, open a suspense account and talk to your accountant.
How to use suspense accounts
A suspense account is essentially a bookkeeping technique for keeping track of funds for a brief period until particular issues are resolved. A business can use a suspense account to record payments it has received but that can’t be properly accounted for until certain missing information (such as an invoice number) is obtained. In mortgage servicing, it is a way for the servicer to record incomplete monthly payments until the borrower has made the payment in full. Brokerage firms also use suspense accounts to, for example, keep track of a customer’s money between the time they sell an investment and when they reinvest that money.
Instead of this causing confusion or potential errors in your account, the funds are placed into a brokerage suspense account. This ensures that your money is safely held while any uncertainties are resolved. For suspense account journal entries, open a suspense account in your general ledger. You might receive a partial payment from a customer and be unsure about which invoice they’re paying. Hold the partial suspense account in balance sheet payment in a suspense account until you contact the customer.
This powerful tool allows financial teams to monitor progress, quickly identify discrepancies, and ensure no transaction is overlooked. By providing a detailed trail of records for each transaction, including the date, time, and user information, it supports organizations during audits. When you get the information you need, reverse the suspense account entry and make an entry in the permanent account. This closes out the suspense account and posts the transaction to the correct account. The suspense account will be written off from the books of account after all of the errors have been detected and corrected. Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping.