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What is Suspense Account?

+2 Votes
July 28th 2014 AN ACCA USER 440 Points

4 Replies

+4 Votes

A suspense account is a temporary resting place for an entry that will end up somewhere else once its final destination is determined. There are two reasons why a suspense account could be opened:

a bookkeeper is unsure where to post an item and enters it to a suspense account pending instructions
there is a difference in a trial balance and a suspense account is opened with the amount of the difference so that the trial balance agrees (pending the discovery and correction of the errors causing the difference). This is the only time an entry is made in the records without a corresponding entry elsewhere (apart from the correction of a trial balance error - see error type 8 in Table 1).
Types of error
Before we look at the operation of suspense accounts in error correction, we need to think about types of error - not all types affect the balancing of the records and hence the suspense account. Refer to Table 1.

Table 1: Types of error
Error type Suspense account involved?
1 Omission - a transaction is not recorded at all No
2 Error of commission - an item is entered to the correct side of the wrong account (there is a debit and a credit here, so the records balance) No
3 Error of principle - an item is posted to the correct side of the wrong type of account, as when cash paid for plant repairs (expense) is debited to plant account (asset)
(errors of principle are really a special case of errors of commission, and once again there is a debit and a credit) No
4 Error of original entry - an incorrect figure is entered in the records and then posted to the correct account
Example: Cash $1,000 for plant repairs is entered as $100; plant repairs account is debited with $100
No
5 Reversal of entries - the amount is correct, the accounts used are correct, but the account that should have been debited is credited and vice versa
Example: Factory employees are used for plant maintenance:
Correct entry:
Debit: Plant maintenance
Credit: Factory wages
Easily done the wrong way round No
6 Addition errors - figures are incorrectly added in a ledger account Yes
7 Posting error
a an entry made in one record is not posted at all
b an entry in one record is incorrectly posted to another
Examples: cash $10,000 entered in the cash book for the purchase of a car is:
a not posted at all
b posted to Motor cars account as $1,000 Yes
8 Trial balance errors - a balance is omitted, or incorrectly extracted, in preparing the trial balance
Yes
9 Compensating errors - two equal and opposite errors leave the trial balance balancing (this type of error is rare, and can be because a deliberate second error has been made to force the balancing of the records or to conceal a fraud) Yes, to correct each of the errors as discovered
Yes, to correct each of the errors as discovered

August 12th 2014 AN ACCA USER 290 Points
0 Votes

Check ACCA Article on - Suspense account and error correction

Copy the link and paste below link in your browser
http://www.accaglobal.com/us/en/student/acca-qual-student-journey/qual-resource/acca-qualification/f7/technical-articles/suspense-accounts.html

This article discusses suspense account and error correction with an illustrative question which makes it easier to understand.

August 6th 2014 AN ACCA USER 8,730 Points
0 Votes
I used to look at it too, but i seem not clear about it. Need other explanation!
August 7th 2014 AN ACCA USER 440 Points
0 Votes
http://smallbusiness.chron.com/examples-accounting-suspense-accounts-62107.html
Check this link for the first reason to open a suspense account. (i.e. a bookkeeper is unsure where to post an item and therefore post it to respective suspense account.
 I guess you understand coding of account and how as an accountant chart of account is tailored as per requirement of different businesses.
Guess it helps you.
August 7th 2014 AN ACCA USER 8,730 Points
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