A suspense account is a general ledger account in which amounts are temporarily recorded. The suspense account is used because the appropriate general ledger account could not be determined at the time that the transaction was recorded.
As soon as possible, the amount(s) in the suspense account should be moved to the proper account(s).
When there is a difference in a trial balance, a suspense account is opened with the amount of the difference so that the trial balance agrees (pending the discovery and correction of the errors causing the difference). This is the only time an entry is made in the records without a corresponding entry elsewhere. Not all types of errors affect the balancing of the records and the suspense account.
Errors which does not affect the suspense account
- Omission – a transaction is not recorded at all.
- Error of commission – an item is entered to the correct side of the wrong account (there is a debit and a credit here, so the records balance)
- Error of principle – an item is posted to the correct side of the wrong type of account, as when cash paid for plant repairs (expense) is debited to plant account (asset). Errors of principle are really a special case of errors of commission, and once again there is a debit and a credit.
- Error of original entry – an incorrect figure is entered in the records and then posted to the correct account. Example: Cash Tsh 1,000 for plant repairs is entered as Tsh 100; plant repairs account is debited with Tsh 100
- Reversal of entries – the amount is correct, the accounts used are correct, but the account that should have been debited is credited and vice versa