How do suspense accounts work? A very important question for anyone working in accounting or auditing, or studying these fields.
In this video, we look at various aspects of suspense accounts:
First, suspense accounts as temporary “waiting accounts” for unclassified transactions.
Second, suspense accounts as “plug” accounts to balance the trial balance.
These first two roles of suspense accounts are often perceived a potential control risk, so we will review indicators of suspense accounts posing a control risk, and discuss how to recognize suspense accounts.
The third section of this video takes a more positive view: using suspense accounts as a proactive control procedure.
To understand the concept of suspense accounts, it is important to know that the word “suspense” comes from the verb “to suspend”, which has various meanings. The most appropriate in relation to suspense accounts is: temporarily prevent from continuing or being in force or effect, and more specifically: defer or delay an action, event or judgement. Use of a suspense account allows a person making a journal entry to temporarily postpone his or her judgment about where an amount really belongs in the chart of accounts.
How to recognize a suspense account? In most cases, the word “suspense” is in the account name. However, there could be multiple accounts with the word “suspense” in there, so review the whole chart of accounts for completeness! Furthermore, an account could function as a suspense account but be named differently: undistributed debits or undistributed credits for example.
Philip de Vroe (The Finance Storyteller) aims to make strategy, finance and leadership enjoyable and easier to understand. Learn the business vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investment decisions. Philip delivers training in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!
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