What is a Suspense Account? - Definition & Examples

Instructor: James Walsh

M.B.A. Veteran Business and Economics teacher at a number of community colleges and in the for profit sector.

The suspense account is used as a place to temporarily hold unclassified or disputed funds and expenses while a company decides where to put them permanently. This lesson will illustrate some common uses for suspense accounts with examples.

What is a Suspense Account?

Every day when you go to work or school, the first thing you have to do is find a place to park. You need somewhere to put your vehicle temporarily while you do your job or learn new things. You have to park in any spot you can find and you may never park in the same spot again! At the end of the day, you will get in your car and move it to your more permanent parking place in front of your home.

The suspense account is just like that parking place you used today in front of your work or school. Of course, the suspense account is a temporary place to park money, not a vehicle! A suspense account is a place that temporarily holds unclassified funds while a company makes a decision as to where to put them permanently. Usually there is doubt or dispute as to where the funds belong, so they are parked temporarily in the suspense account. Let's take a look at some examples.

Mystery Payment

An electronics wholesaler received a check for $2,000 from a department store for payment on a merchandise invoice. This particular store usually has 5 or 10 outstanding invoices at a time from purchasing TV's and game gear from the wholesaler. The bookkeeper needs to put the check into the accounting system to make sure it gets in the bank deposit but there is nothing noted on the payment that says which invoice it goes with. She will use the suspense account and make this journal entry:

Journal entry to park the mystery payment in the suspense account.
Suspense 1

On the way out, the bookkeeper takes the payment to the sales manager and asks which invoice the money should be applied to. He quickly calls the store and irons out the situation. As he leaves he puts a note on the bookkeeper's desk with the needed information. The next morning she makes this journal entry:

Journal entry to close the suspense item and apply the funds to the proper invoice.
Suspense 2

Mystery Bill

Someone ran in the front door and left an invoice for $1,000 on the counter. The man who ran in said it was for the computer repair work they did a few days ago. He ran back out the door again without saying another word! The receptionist looked at the invoice and had no idea what it was about. On her way to lunch, she took the invoice up to the accounting department. One of the staff accountants took it and recognized the name on the invoice, it's a company that regularly visits to do maintenance and repairs on computer hardware. She decides to use the suspense account when she puts it into the system since she has no idea which department to charge for the expense. The journal entry looks like this:

Setting up the suspense account for the mystery bill.
Suspense Account

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