What is a suspense account?
A suspense account is a temporary holding account for transactions whose correct category is not yet known, which should be investigated and cleared before accounts are finalised.
What a suspense account means
Sometimes money comes in or goes out and you do not know what it is for. Rather than guess, the bookkeeper posts it to a suspense account, a temporary home in the general ledger, until the right treatment is found. Historically suspense accounts were also used to hold the difference when a manual trial balance did not agree.
A suspense account should be empty when accounts are finalised. A balance left in it means something has not been accounted for properly.
Example
A bookkeeper reconciling a builder's bank account finds three items she cannot identify:
| Date | Description on statement | Amount | Resolution |
|---|---|---|---|
| 3 May | Transfer in, ref "JS" | £2,400 | Customer payment for invoice 1187 |
| 11 May | Card payment, Amazon | (£186) | Tools, coded to equipment |
| 28 May | Transfer out to personal account | (£1,000) | Director's drawing, coded to director's loan account |
She posts all three to suspense so the bank reconciliation is complete, then sends the owner a short list of questions. Once he replies, she moves each item to the correct account with a journal entry and the suspense balance returns to zero.
Why it matters for your business
Suspense is useful because it keeps the books moving rather than holding everything up for one unknown item. But a growing suspense balance is a warning sign. Unidentified income may be taxable sales that have not been reported. Unidentified payments may be personal spending, missing invoices or even fraud. Items in suspense also distort your profit and loss and VAT returns.
HMRC and lenders view an uncleared suspense account in year-end figures as a sign of poor record keeping.
How to keep it clear
- Use clear payment references and ask customers to quote invoice numbers.
- Capture receipts for card spending as you go, using an app such as Dext.
- Answer your bookkeeper's queries promptly each month.
- Review the suspense balance at every month end, not just the year end.
If an item stays in suspense for more than a month, it usually means a document is missing. Chasing it while the transaction is recent is much easier than trying to remember a payment from eleven months ago when the year-end accounts are being prepared.
Common questions
It can be either, depending on the balance, and it is neither in substance. It is a temporary account. Once each item is identified it is moved to the correct asset, liability, income or expense account, and suspense should return to zero.
It should not. Accountants clear suspense before finalising statutory accounts. If a small unexplained balance genuinely cannot be resolved, it is written off to an appropriate account with an explanation, rather than left in suspense.
More accounts & bookkeeping terms
- Accounting equation
- Accounts payable
- Accounts receivable
- Accrual accounting
- Accruals
- Amortisation
- Assets
- Bad debt