When is a suspense Account opened? How are errors rectified through Suspense A/c?
Answers
The suspense account is prepared purely on a temporary basis. In Accountancy before the preparation of a TB, an Accountant has to make sure that whether the accounts so far has been prepared by him are in agreement with aggregation of debit and credit in a statement called TB.
If there is any difference between totals of a debit or a credit column in the trial balance, the accountant goes back to check for errors if any in the journal entries passed right from in day book to the stage of posting of the same in ledger.
Despite the efforts made to check for errors, if an Accountant is unable to locate those ones; then he/she opens a temporary account called “Suspense Account” to make both the totals of debit and credit equal to avoid the delay in preparation of the Financial Statements at the year end in order to submit them within the due time to the tax authorities concerned.
The difference amount as opened in the Suspense account is placed on the debit side if the total credit is greater than the debit in the TB. To say in short, the Suspense Account appears on that side in a TB whose sum is lower than the other side.
At a later time when errors are tracked down, the Suspense Account gets closed with passing appropriate rectification entries as per the accounting principles. This is all about the “Suspense Account” why there is a need to open and to close it.
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1. A suspense account is opened whenever you receive a payment and you cannot identify which invoice the customer wants paid or which customer made the payment. If your customer sent in a partial payment, contact the customer to find out which items or invoices the payment covers.
2. We can rectify these errors by giving an explanatory note in the account or by passing a journal entry with the help of Suspense A/c. When we detect an error before posting to the ledger, we can correct it by simply crossing the wrong amount, writing the correct amount above it and initializing it.
I hope it's helpful for you...
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