Why do we prepare a Suspense Account?
A Suspense account is created in the following cases:
1. While Preparing Trial Balance: A Suspense account is useful while the trial balance is being prepared and when the credit balance and debit balance do not match. The difference amount which is not identified can be transferred to the suspense account in trial balance. For a credit balance greater than a debit balance, the difference is recognised as a debit, and for a debit balance, that is greater than a credit balance, the difference is recognised as a credit.
2. When Partial Payment is Received: Sometimes, there might be a confusion regarding payments when clients pay a partial amount and the unit to which the invoice is paid is not clear. These payments may be placed on hold by transferring to a suspense account until the customer is contacted and the invoice is determined.
3. When you don’t know Who Paid: Suspense account is opened when sometimes, payment may be received, but the company cannot identify the client from whom it is received. The best solution is to transfer the amount to a suspense account and check the unpaid invoices in the register, and then match the payment transaction. Also, more clarity can be achieved by contacting the customer and verifying the transaction details.
4. When you don’t know how to Categorise Transactions: You may not always know how to categorise transactions when you are a small business owner and not an accountant. In such cases, if you’re not sure about where to enter a transaction, then a suspense account is created and corresponding accountant is consulted.