What is a suspense account? Examples and how to clear one

If you’ve spotted a suspense account in your bookkeeping records, you might be wondering what it is and whether you should be concerned.

Suspense accounts aren’t necessarily a sign that something has gone wrong. They’re often used when a transaction needs to be recorded, but you don’t yet have enough information to put it in the right place.

However, if transactions remain unresolved, they can affect the accuracy of your business accounts.

What is a suspense account?

A suspense account is a temporary account used to hold transactions or balances until you can work out where they belong.

For example, you might receive a payment into your business bank account but be unable to identify who sent it. Rather than guessing what the money is for, you could record it in a suspense account while you investigate.

Once you’ve identified the payment, you can transfer it to the correct account.

Why might your business have a suspense account?

One common reason is an unidentified payment. Perhaps a customer has transferred money without including an invoice number or reference. You know the money has arrived, but can’t immediately identify which customer account to credit.

Sometimes the problem involves a payment you’ve made. Your bank statement might show an unfamiliar transaction, and you need to establish what it relates to before allocating it.

You might also find transactions in suspense because someone has entered incomplete information or used the wrong account when recording a payment.

In manual double-entry bookkeeping, a suspense account has another purpose. If the total debits and credits in a trial balance don’t match, an accountant may temporarily enter the difference into suspense while investigating the discrepancy.

Accounting software generally prevents unbalanced journal entries, so trial balance differences now mostly arise from manual records or from data imported or converted between systems.

It’s worth remembering that not every bookkeeping mistake will cause a trial balance to disagree. For example, recording an expense in the wrong expense account could leave the debits and credits perfectly balanced.

Suspense account examples

Example 1: An unidentified customer payment

Suppose you’re checking your business bank account and notice a payment of £750.

You haven’t received a remittance advice, and the bank reference doesn’t identify the sender. You can’t find an obvious match among your outstanding customer invoices either.

Your bookkeeper records the money as follows:

This records the money received without incorrectly allocating it to a particular customer or treating it as sales income.

A few days later, you discover that the payment came from a customer settling an existing invoice.

Your bookkeeper can then transfer the amount from suspense to the customer’s account:

The suspense account balance returns to zero, and the customer’s outstanding debt is reduced by £750.

No additional sales income is recorded because the sale was already recognised when the invoice was raised.

Example 2: A trial balance doesn’t agree

Now imagine your accountant is preparing your accounts and finds that the trial balance has total debits of £45,000 and total credits of £44,500.

There’s a difference of £500.

To balance the trial balance temporarily, your accountant enters a £500 credit into a suspense account.

On investigating, they discover that a £500 expense was correctly debited to repairs and maintenance, but the corresponding credit to trade creditors was accidentally omitted.

The accountant corrects the error as follows:

This clears the suspense account and restores the missing entry.

Is a suspense account an asset or a liability?

A suspense account doesn’t have a fixed classification. Its treatment depends on the nature of the transactions it contains.

For example, a suspense account holding an unidentified customer receipt will normally have a credit balance. In Example 1, the business has received £750 but hasn’t yet established how to allocate it.

An unidentified payment out of your bank account, on the other hand, might create a debit balance in suspense.

The balance alone doesn’t establish whether the amount represents an asset, liability, income or expense. You’ll need to investigate the underlying transactions before deciding on the correct accounting treatment.

How do you clear a suspense account?

If your accounting software shows a suspense account balance, start by establishing which transactions make up the total.

Examine the individual entries rather than concentrating solely on the overall balance. Several unrelated transactions could have been recorded in the same suspense account.

For each entry, check your bank statements, invoices, receipts and other supporting records.

You may need to contact a customer or supplier to identify a payment. If the problem involves a bookkeeping error, compare the original transaction with the entry in your accounting software.

Once you know where the amount belongs, you can make the appropriate correcting entry.

For example, an unidentified customer receipt might be allocated against an outstanding invoice. An expense recorded in suspense could be transferred to the correct expense account once you’ve established what it was for.

If you’re correcting a trial balance discrepancy, you’ll need to identify the original error and make the necessary journal entry.

Don’t simply write off a suspense account balance to make it disappear. You need to understand what caused it before deciding how to correct it.

Occasionally, a small difference may remain untraceable despite reasonable investigation. If it’s immaterial, your accountant may decide that writing it off is appropriate.

Once you’ve resolved the entries, the suspense account should return to zero.

What happens if your suspense account has a balance at year-end?

If your suspense account still contains transactions when your financial year ends, your accountant will need to investigate them before finalising your accounts.

An unresolved balance could represent an unallocated customer receipt, an unidentified liability or an expense that hasn’t been recorded correctly.

Left unresolved, these items can affect your reported profits and potentially the amount of tax you owe.

For example, suppose you’ve recorded a £2,000 business expense as a debit in suspense. If you leave it there rather than transferring it to the appropriate expense account, your reported profit will be £2,000 too high.

If that error carries through to your tax computation, you could also end up paying too much tax.

The reverse can happen if business income is still held as a credit in suspense at year-end rather than recognised as revenue. Your reported profit could be understated, potentially leading to an underpayment of tax.

How can you avoid suspense account problems?

Good bookkeeping practices can help reduce the number of transactions that end up in suspense.

Regular bank reconciliations are particularly useful. By comparing your bank statements with your accounting records, you can identify unfamiliar payments and errors before they accumulate.

It’s also worth encouraging customers to use invoice numbers when making payments. If you regularly receive money without clear references, it’s worth considering how to improve your invoicing and payment processes.

Keeping receipts and invoices organised will make it easier to identify transactions when questions arise.

If you use cloud accounting software, review any transactions marked as uncategorised or awaiting allocation. These aren’t necessarily suspense account entries, but they may need similar investigation.

Finally, check any suspense account balances regularly. Resolving an unfamiliar payment a few days after it appears is usually easier than investigating it six months later.

Need help with your bookkeeping?

At THP Chartered Accountants, we can help you keep your financial records in order, identify bookkeeping errors and prepare accurate accounts.

Our team can take care of your bookkeeping, whether you need regular support or help bringing your records up to date.

Find out more about our bookkeeping service or get in touch to discuss your requirements.