This chapter introduces the suspense account. A suspense account is a temporary account used when errors cause the trial balance not to agree, and one side of the double-entry is unknown. You’ll see why it’s used, how it arises, and how to use it (and clear it) through the correct journal entries.

Learning objectives

By the end of this chapter, you should be able to:

• Explain the purpose of a suspense account.
• Identify errors leading to the creation of a suspense account.
• Record entries in a suspense account.
• Prepare journal entries to clear a suspense account.

Introduction

In earlier illustrations, the general ledger accounts affected by each error were known. That made it possible to pass journal entries directly to the correct ledger accounts.

In practice, you may discover an error but still be unable to identify one of the affected general ledger accounts before the financial statements are prepared. When that happens, you use a suspense account.

Definitions

Suspense account

It is a temporary general ledger account used to correct errors and transactions that cannot be immediately posted to their proper general accounts due to incomplete or uncertain information.

A suspense account acts as a holding general ledger account for:

• discrepancies,
• unidentified items, and
• unbalanced entries.

Once the missing information is found, you pass journal entries to transfer the amount from the suspense account to the correct general ledger account(s). This process should clear the suspense account balance.

Suspense account: Passing journal entries to correct errors

Correcting errors using a suspense account follows the same approach as in the earlier chapter. The key difference is that, here, one of the general ledger accounts is unknown (or the information is uncertain). Until the correct account is identified, the amount is posted to the suspense account.

Let’s work through an example. Illustration: Suspense account

The following errors were discovered in the books of a sole trader after the trial balance totals failed to agree. The difference was GH¢2,200, and it was credited to the suspense account.

You are required to pass the necessary journal entries to correct the errors in each of the transactions that follow.

1. A credit sale of GH¢2,500 to Kwame was correctly posted to receivables ledger account but omitted from the sales general ledger account.

Do you know the answer?

1. Rent expense of GH¢800 was debited to the rent receivable general ledger account.

Do you know the answer?

1. A payment of GH¢1,200 to a supplier was correctly entered in the Cash Book but not posted to the payables ledger account.

Do you know the answer?

1. A motor vehicle purchased for GH¢15,000 was debited to the purchases general ledger account.

Do you know the answer?

1. A credit purchase of GH¢4,300 from Afia was entered correctly in the purchases ledger account but posted to the payables general ledger account as GH¢3,400.

Do you know the answer?

Now, draw up the Suspense Account to show how the errors are corrected. Suggested solution

*This was the difference between the total debit and credit on the trial balance. Upon correcting the errors, the suspense account automatically balances off, which is an indication that the trial balance would now agree.