Preparation of Suspense Account
Suspense Account is primarily prepared to rectify all the one-sided errors, which affect the trial balance. It shows the net effect of all the errors of the trial balance. Those errors that do not affect the trial balance are not rectified by the suspense account. Errors are rectified by debiting the correct account and crediting the Suspense account. Similarly, when a correct account is credited, the Suspense account is debited. When all the rectified entries are recorded into a suspense account, it should not be left with any balance. If the suspense account is showing a balance, it means that some errors still exist. Suspense Account comes under current asset or current Liabilities depending upon the transaction. If the Suspense Account shows a debit balance, it is taken to the asset side of the Balance Sheet, whereas if it shows a credit balance, it is taken to the liability side of the Balance Sheet.
Illustration:
Rectify the following errors identified in the books of GFG as on 31 March 2022. The Trial Balance did not match. It shows ₹7,465 being extra credit. Pass necessary journal entries and open suspense account.
- Returns Inward Book was shortcasted by ₹500.
- A Purchase of ₹1,035 was posted to Creditor’s Account as ₹1,000.
- An amount of ₹5,000 owed by Sayeba was omitted from sundry debtors.
- Nupur paid ₹2,500, but her account was wrongly credited with ₹4,500.
Solution: