Suspense accounts and how to clear them

What puts an entry in suspense

ACCA describes a suspense account as a temporary holding account for a bookkeeping entry that will end up somewhere else once the correct account is determined (ACCA: suspense accounts and error correction). In a manual system a suspense balance arises from a one-sided entry, or from both sides posted to the same side of the ledger. Computerised systems post a difference to suspense when an imbalanced entry is forced through, and bookkeepers use it for amounts they cannot yet code.

In practice a suspense balance comes from one of three places: opening balances that did not balance, bank lines the bookkeeper could not identify, and an imbalance carried in from a spreadsheet or an imported trial balance.

Errors that create a suspense balance

• Only one side of an entry posted (ACCA).
• Both sides posted as debits, or both as credits.
• Different figures on the two sides, such as a transposition on one side only.
• A balance left out when opening balances or a trial balance were entered.

Errors that do not touch suspense

An omitted transaction, an error of principle, an error of commission, a reversal of entries and the wrong figure posted to both sides all leave the trial balance in agreement, so no suspense balance appears (ACCA). They are found by review and reconciliation. See the trial balance explained.

Clearing suspense, worked

The amounts are illustrative. Each correction is a journal with suspense on one side and the account that should have been posted on the other. Before any correction, suspense in this example held a debit of 450 (the missing debit side of the telephone bill), and credits of 180 and 600 (the sales shortfall and the unidentified receipt), a net credit of 330. After the three journals the balance is nil.

Each journal carries a description of the error it corrects, so the trail from the original entry to the correction is clear to a reviewer.

Clearing a suspense account

1. List every entry in it

   Run the nominal ledger for the suspense account and list each posting with its date, source and amount.

2. Trace each one

   For bank lines, ask the client or check the remittance, invoice or contract. For imbalances, compare the ledger with the source records, starting with the period in which the difference first appeared.

3. Post a correcting journal

   Move each amount to its correct account. Correct VAT at the same time if the item should have carried VAT.

4. Review what is left

   A small residual difference that cannot be traced after reasonable work is written off to the profit and loss account with a note on file, at a level the reviewer approves.

5. Prevent it recurring

   Set a bank rule for the payee, fix the source of a recurring imbalance, and check opening balances against the prior year accounts.

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