Every business calls for the settlement of some unsettled, ambiguous, and temporary calculations and entries in their ledger on a daily basis. Where should these entries be made in your bookkeeping record? Are these short-term records a part of assets or liabilities? What is a suspense account? And, how to manage a suspense account?
Moreover, the ambiguous entries without a destination or place in the bookkeeping may create many problems and loopholes in the finances of a business. As a result, your finances may show a red flag of fraud if you do not manage these incomplete records on your balance sheet. So, it’s imperative to maintain a proper record in your ledger of all entries of debits and credits, invoices and receivables requiring a clearing.
If these are the questions bothering you when you come across some records requiring immediate settlement, this article will help you answer all your queries about the suspense account. The transitory records without any clear destination on the ledger need to be managed separately. So, let’s start our discussion!
What is a Suspense Account?
A suspense account is a temporary account to record all the indefinite or unclear entries in your business ledger. In this account, you enter those financial records that are in doubt, and you have no log from where these expenses or receivables have come, either invoices or a credit note.
Get quick and easy bookkeeping services with a single click at the Accounting Firms where you can get the best possible accounting services in UK.
Moreover, a company has some payments yet to be made. So, these payments cannot be entered into a ledger unless the amount is paid. As a result, you maintain the record of this payment in your suspense account until it has been made. Once you make a payment, you can transfer those records to your ledger.
On the other hand, the classification problem arises while managing accounts. For example, you have an invoice sent to your customer, and you don’t know which department owes this payment. So, you record this payment in a suspense account.
Similarly, if you have some dues unclear and have not received payments from your customers, you can record these receivables in your suspense account. After receiving payments, you can remove them from your suspense account and add them to their correct destination account.
The financials manage suspense accounts quarterly. However, you can manage these suspense accounts as per the requirements of your business. Large-scale businesses manage these unsolved records after two or three months to avoid uncertainty and fraud.
On the other hand, small-scale businesses manage suspense accounts daily, weekly, or monthly due to the small number of records.
Let’s now learn how to manage a suspense account after learning about ‘what is a suspense account?’
How to Manage a Suspense Account?
Suspense account management is the same as other accounts are managed, except that suspense accounts are temporary and can be deleted after all dues are cleared. A suspense account has two parts: debit and credit.
If you have made a payment without classifying it, you can record it in your suspense account as a debit. After the payments have been categorized, you can enter this record as a credit in the correct ledger. For example, you received an invoice of £1500 from a vendor. However, you do not know the department of this invoice. So, you place this payment in your suspense account as:
Later, you find that the purchasing department has made the payment. So, you close the suspense account after making these adjustments:
|Purchasing Department supplies
Why is Suspense Account Important to Manage?
Suspense accounts save you and your finances from any fraud or missing information. If you do not organize your suspense account to manage the missing or wrong data, your finances will become mystified and messed up. So, you must maintain a proper record of missing, uncategorized and vague information in a separate account like a suspense account.
Moreover, keeping all the invoices in a suspense account makes your bookkeeping organized and error-free. Your records are transparent, and there’s no room for error, which makes your tasks convenient and faultless.
In sum, a suspense account helps you considerably manage your finances and unsettled records before you finally enter them in your ledger or bookkeeping record. Saving you from missing any important record, you can easily add all the ambiguous and uncategorized in the suspense until they have been finalized and transferred to the respected record. So, you must be able to manage your accounts easily after learning about ‘what is a suspense account?’
Disclaimer: All information contained in this blog is used only for general purpose. For more information, you can consult an expert and advisor regarding your complex taxes and bookkeeping concerns.