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A suspense account is a special designation within an accounting process that is used as a temporary classification for disbursements or receipts that require further analysis before making a permanent assignment within the records. Accounts of this type serve a useful function, in that they are often used as a means of accounting for transactions that lack enough information to properly classify them. The presence of the account allows time to research the nature of each transaction and clear up any issues that impede posting the item in the appropriate location within the accounting books. Businesses of all sizes normally include a suspense account within their accounting scheme, thus making sure that monetary transactions with some related issue are resolved in a timely manner, and not allowed to be lost in the general processes of accounting.
One common use of a suspense account is a place to temporarily park doubtful receipts. Receipts of this type may carry an account number that is invalid, making it difficult to post the receipts to the proper line item, such as an invoice. A receipt with this type of problem will remain in the suspense account until the discrepancy is resolved, and the item is moved out of the account and into the correct section of the records.
Some companies utilize a suspense account as a means of temporarily accounting for disbursements that must be charged back to a department, but where there is some difference of opinion as to which department should absorb the cost of the disbursement. While decisions are made about how to charge the disbursement, the item remains in the account, and is only removed if it is decided which department or departments will absorb the expense. In situations when it is decided that the expense is related to the overall function of the business, the disbursement may be transferred to and charged against the company’s general fund.
The idea of the suspense account is also found with branchless banking, or BB. For example, if a customer submits payment via an electronic transfer to the bank of a supplier, the funds are placed into a suspense account until they are actually deposited into the supplier’s bank account. This allows the transaction to be properly accounted for in the interim period. As a bonus for the receiving bank, the balance of the transfer accrues interest for the short time it is in the account.
In all its applications, the main function of the suspense account is to make sure accounting records are kept accurately, and that no transaction is overlooked in the posting process. When some issue arises with a transaction, or the transaction is in the process of execution, the account functions as a temporary holding area until the matter can be fully resolved. Once the transaction is ready to be completed, the item is transferred out of the account and into the rightful point of termination within the accounting records.
With a mortgage company or bank, this is a way to rip you off. Let's say your payment is $800, but for some reason you send $750. The $750 will be put in suspension because it is not a full payment and now you are late and late fees are added and you still owe the $800 plus late fees, and the $750 just sits there.