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A suspense account is used to record the balance or transactions temporarily that cannot be identified. It helps to keep track of your transactions from your mobile phone with invoicing software and online accounting. To know more about suspense account in QuickBooks, stick through this guide till the end.
Content Summary
What is a Suspense Account in QuickBooks?
A suspense account is an account that can be used temporarily or permanently to record doubtful entries. In other words, when the trial balance goes out of balance or if the account has an unidentified transaction, it requires you to set up the suspense account.
When you work with the trial balance, it is allowed to open a suspense account in order to hold the discrepancies until you identify them. However, such accounts are temporary which should be closed by the end of the accounting cycle.
The suspense account can also be a liability of assets. If it is the asset in question then the suspense account is considered as a current asset because it keeps the payment that is related to the accounts receivable.
On the other hand, if your account holds the account payable then it will be considered as a liability asset for which you have no idea how to classify them.
Trial Balance
The suspense account is recorded on the trial balance which is located under the Other Assets heading. This remains right there until you find the reasons for imbalance. Also, if the debits of the trial balance are larger than your credits then this difference records as a credit in your suspense account.
Contrarily, if your trial balance credits are larger than your debits then this difference records as a debit in your suspense account. However, when you identify the reason for your trial balance and make the correction for the same then these accounts get closed. As a result, the suspense account gets removed automatically from your trial balance.
Received Payments
When you receive a payment, it requires you to open a suspense account. You cannot find out which customer has sent the payment and for which invoice. In case the customer sends in partial payments then you can connect your customer directly to know for which invoice and items they have paid you.
If you cannot find out who sent you the payment then there is only one way to figure this out; open the invoices and match up the details such as payment. Before you post the payment, you can call the customer so that they can verify the payment. In case you cannot find out the customer then hold this payment in suspense until you identify the right customer who claims this payment or may be you delete the customer from the QuickBooks.
Accounts Payable Suspense Accounts
When you buy a fixed asset by making a payment but won’t receive the asset until it is paid off completely. In such a scenario, accounts payable can be opened. The suspense account allows you to record the payments without even assigning payment to a particular machinery account or equipment.
Besides, joining these payments with the existing fixed asset will surely distort the asset value. When the payment is finally made and you receive the asset then you can close your suspense account. Also, make sure that you open a new account for the fixed asset.
Journal Entries
If there is a one-sided error that is corrected by the journal entries then you can use the suspense account for credit or debit either. However, it totally depends upon the nature of an error.
Suspense Refund: To make a suspense refund, when a client level activity starts, OIPA generates a suspense refund number automatically. The final process demands that an expense activity processes in order to return money to their client.
Suspense Balance: As stated earlier, a suspense account is used to hold the funds until the servicing firms or mortgage lender decides how to allocate or apply those funds. For example, making the payments for homeowners insurance and property tax. The amount that is held in your suspense account refers to the suspense balance.
When You Should Use a Suspense Account?
There can be different scenarios when you hold payments in the suspense account. Here are the following cases when you need to use a suspense account:
- When you prepare a trial balance.
- You receive a partial payment.
- When you are not aware of who made the payment.
- You purchase a fixed asset but do not receive it until it is paid off.
- You have no clue how to classify the transaction.
How to Set Up a QuickBooks Suspense Account?
If you want to set up the suspense account in your QuickBooks, you can do it from the List menu. All you have to do is select the Chart of Accounts, select the Account Type, and add a new account with the relevant details.
To create a suspense account, you can follow these helpful steps:
- Click on the “Account” located at the bottom,
- Go to the “New” button.
- Select the “Account Type Expense”.
- Hit the “Continue” button.
- Now, go to the “Account Name” field and add the name of your account.
- In case you use account numbers then go to the “Number” field and add the account number.
- Hit the “Save and Close” button.
Once you save the details, you can use the suspense account so that you can work on a trial balance. This way you can hold all the differences until you identify them.
How Do You Clear a Suspense Account in QuickBooks?
To clear your suspense account, you need to find out that your transaction records have an original account. This can be done from the Inquiry menu.
Here are the steps for that:
- Go to the “Inquiry” menu.
- Click on the “Account” menu.
- Go to the “Current” option.
- Hit the “OK” button.
- Click on the “Conditions”.
- Go to the “Field” tab.
- Select the “Account”.
- Now, click on “Equal to” in the “Operator” section.
- Then, type the “Suspense account number” in the “Value” section.
After following these methods, don’t forget to click the OK button to save changes. This way you can clear your suspense account. Make sure that you add the correct suspense account number.
Importance of Suspense Account in QuickBooks
A suspense account helps to maintain and organize your accounting books. The suspense account has a vital role in ensuring that your account for the transaction is correctly in the books. If you record dubious transactions in your permanent accounts, you may receive an inaccurate balance.
QuickBooks suspense account is useful to avoid recording transactions in the wrong account. Also, you avoid failing to keep the transaction due to missing details.
To Sum Up
QuickBooks suspense account is a control account that works as a holding account until any issue is highlighted or the unrecognizable transaction is detected. In this guide, we have talked about suspense accounts and in what situations you need to use them. Besides that, we have shown how to set up and clear the suspense account.
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Frequently Asked Questions (FAQs)
Ans. A suspense account is used to store the transactions temporarily when you are unsure if the payment should be recorded. However, larger unreported transactions might not be kept by the end of the reporting time which results in inaccurate financial results.
Ans. A suspense account can be used to hold uncategorized transactions temporarily. But, you need to remember that when you move the transaction to the permanent account, you need to close this suspense account.
Ans. If you think the suspense account is not closed by the end of the accounting period then you should see the balance in the suspense account (on the asset of a balance sheet) if it’s a Debit balance. But, if it is a Credit balance then you would see the details on the liability section of your balance sheet.
Ans. The items are identified as expense or income either on the profit and loss statements. If there is any uncertainty of recognition then the item will be posted to the temporary account which is called the suspense account.
Ans. A suspense account can be credited or debited when you are aware of one side of the payment but not the other side. However, you don’t always involve monetary transactions. Due to this, a suspense account is considered only a temporary account.