A temporary account corrects accounting errors so what is the suspense account?
I’m Thomas Harwood and Welcome to The Accounting Student, where we create free and short videos
so that you can learn about accounting.
Today’s video is looking at what is a suspense account.
In the previous video on the Errors not affecting the trial balance we looked at six main errors
that do not affect the trial balance but the balance is still incorrect.
As well, there are some errors that mean that the trial balance totals do not equal. The
most common include:
Incorrect addition in any account Making an entry on only one side of the accounts,
for example, there is a debit entry but no credit entry or there is a credit entry but
no debit entry and finally entering a different amount on
the debit side from the amount on the credit side, for example, a debit entry was £100
and the credit entry was £110.
When the trial balance totals do not equal then an effort should be made to try to identify
and resolve the errors.
If for some reason, the errors cannot be found, the totals from the trial balance can be made
to agree and balance with each other by inserting the amount of the difference between the two
totals in a suspense account.
Subsequently the errors should be found and corrected through the suspense account and
this would result in the account being cleared or having a balance of zero.
A suspense account can be defined as a temporary account, which is used when the appropriate
account could not be determined at the time of recording.
Let’s have a look at a suspense account in practice.
A suspense account is just like a normal T account or ledger account and the left hand
side is still a debit and the right side is still a credit, more simply it still follows
the rules of double entry.
Ok, the trial balance for F.Quinn as at 31 December 2016 looked like this…
If you look at the totals it shows that they do not balance.
The first thing we should do is workout the difference between the totals. And that is
£5,000 - £4,725 = £275.
So the credit total is £275 more than the debit total.
Because there is a difference, a suspense account is required and therefore one is opened.
The difference of £275 is entered in the trial balance to make the totals balance and
it is also entered in the suspense account, in this case, on the debit side with the description
“difference as per trial balance”, like so.
Then a few days later, two errors were discovered.
The first error was that a credit entry for a £175 payment received of a sale had been
recorded correctly but the matching debit entry has not been made.
Firstly, you should identify the two accounts that the transaction affects and they are
the bank account and sales account.
Then you should identify what account has a debit entry and what account has a credit
entry.
In this case, the bank account would have a debit entry and the sales account would
have a credit entry.
It says that the credit entry was correctly made and that the debit entry has not been
made. So a debit entry needs to be made to increase the bank account therefore we make
a credit entry of £175 in the suspense account.
The second error is that purchases were undercast by £100.
This means that we need to increase purchases by £100 therefore we make a debit entry in
the purchases account and we make a credit entry in the suspense account.
If we were to balance off the suspense account now, both sides would total to £275 and there
is no closing balance to be brought down, this means that the errors identified have
now been corrected.
So that was the explanation of the suspense account and the correction of errors. If you
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