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. Most business suspense accounts involve receivables and payables, like the examples above, but there are also other uses for suspense accounts. https://www.bookstime.com/ Some banks will not apply partial payments to customer mortgage accounts because of doubt as to the proper amounts to apply to principal, interest, and escrow. In these cases, they will hold the partial amount in a suspense account until the customer remits the remainder of the payment. Brokerage firms also use suspense accounts to park client funds after securities are sold and the client isn’t sure about what to do with the proceeds.
“We would recommend keeping track of suspense items within a control account in your accounting software,” says Alice Pearce, Senior Client Advisor at Wilson Partners accountancy firm. Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University. They know who sent the payment, however, the vendor has several outstanding invoices and haven’t specified which invoice the payment should be paid against.
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The purpose of the suspense account is to have an account specifically for miscellaneous or unclassified transactions. This account is used temporarily for these and other similarly unclear issues. On 1 September 20X8, Michelle had a balance outstanding owed to one of her suppliers of $400. Michelle and the supplier agreed to settle the balance owed to Michelle through a contra entry.
If there is an anomaly, this amount is placed in a suspense account until the balance is corrected, and the amount is accurately placed in the right account. Just like any to-do pile, the suspense account cannot hold your mystery amounts forever, and its proper place will need to be determined. Businesses may decide to clear suspense account their suspense accounts quarterly, while smaller companies may do so more often. If it’s an asset in question, the suspense account is a current asset because it holds payments related to accounts receivable. A suspense account could also be a liability if it holds accounts payables that you don’t know how to classify.
Placing the suspense account on the balance sheet
At first, Michelle did not recognise the amount so she included this in her accounting records by debiting the suspense account and crediting the bank account. On investigation, she discovered that it was a direct debit for a subscription to an IT support service. The payment relates to IT support services which Michelle will make use of from 1 September 20X8 to 31 August 20X9.
- Hold the partial payment in a suspense account until you contact the customer.
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- The nature of the suspense account is that it’s a short-term account as you need to transfer your funds back to your regular account.
- Unfortunately, the best section may not be known at the time of the receipt, and it is hard to say where you will find the suspense account in your own chart of accounts and general ledger.
- Subsequently when the business determines the transaction classification it transfers the amount from the suspense account to the correct account.