Suspense account is an account in the general ledger in which amounts are temporarily recorded. It is used when the proper account cannot be determined at the time the transaction is recorded. When the proper account is determined, the amount will be moved from the suspense account to the proper account. It can also be used when there is a difference between the debit and credit side of a closing or trial balance, as a holding area until the reason for error is located and corrected.
It should be cleared at some point, because they are for temporary use. Suspense accounts are a control risk. In other words It is an account used to temporarily store transactions for which there is uncertainty about where they should be recorded. Once the accounting staff investigates and clarifies the purpose of this type of transaction, it shifts the transaction out of the suspense account and into the correct account. An entry into a suspended account may be a debit or a credit.
It is useful to have a suspended account, rather than not recording transactions at all until there is sufficient information available to create an entry to the correct account. Otherwise, larger unreported transactions may not be recorded by the end of a reporting period, resulting in inaccurate financial results.
Customer sends in a payment for 1,000 but does not specify which open invoices it intends to pay. Until the accounting staff can ascertain which invoices to charge, it temporarily parks the 1,000 in the suspense account. In this case, the initial entry to place the funds in the suspended account is: