In accounting, a suspense account serves as a temporary holding place for transactions that can’t be immediately categorized. It helps manage discrepancies, such as missing information and math errors, until issues are resolved. Since it’s used for both debits and credits, it doesn’t have a fixed normal balance — the balance depends on the nature of the transaction waiting to be classified.
When to use a suspense account
A suspense account is used as a last resort when you’re having problems categorizing or classifying transactions. Here are some scenarios where it can be used:
Unidentified customer payments
Some customers forget to send remittance advice or proof of payment when they settle their bills. When this happens, it’s impossible to account for payments without knowing who they came from.
For example, on February 1, a small therapy practice receives a $500 payment with no client name or invoice number. The accountant doesn’t know who paid this amount, which is already in the bank account.
Date | Account | Debit | Credit |
|---|---|---|---|
Feb 1 | Cash in bank | 500 | |
Suspense account | 500 | ||
(To record unidentified customer payment) |
On February 15, Jane Doe sent the payment confirmation to the business. The business should now clear the suspense account and remove the balance from Jane Doe’s outstanding balance.
Date | Account | Debit | Credit |
|---|---|---|---|
Feb 1 | Suspense account | 500 | |
Accounts receivable - Jane Doe | 500 | ||
(To record customer payment) |
Partial transactions
Sometimes, businesses receive incomplete invoices or purchase orders, making it unclear how to categorize expenses. Rather than delay recording the transactions, the accountant uses a suspense account until they have the missing information.
To illustrate, a construction company purchases building materials for $10,000 on March 1. The supplier delivers the materials and an invoice that lists the total cost but doesn’t break down the expenses for lumber, cement, and steel beams. Without these details, the accountant can’t allocate the costs to the correct expense categories.
Date | Account | Debit | Credit |
|---|---|---|---|
Mar 1 | Suspense account | 10,000 | |
Accounts payable | 10,000 | ||
(To record partial transactions) |
On March 10, the supplier forwarded a detailed invoice that shows $3,000 for lumber, $1,000 for cement, and $6,000 for steel beams. The accountant should now clear the suspense account in light of the information.
Date | Account | Debit | Credit |
|---|---|---|---|
Mar 10 | Building materials inventory - lumber | 3,000 | |
Building materials inventory - cement | 1,000 | ||
Building materials inventory - steel beams | 6,000 | ||
Suspense account | 10,000 | ||
(To record material purchases) |
Unknown deductions
There are instances when you see deductions in your bank accounts that don’t have clear details as to what those are. When you encounter such, it’s best to record them in a suspense account while investigating.
For example, the accountant of a marketing firm noticed a $1,500 deduction in the bank records labeled as “Credit Card Payment” dated May 29. Upon checking the records, there was no deduction. In the meantime, the accountant records it in the suspense account.
Date | Account | Debit | Credit |
|---|---|---|---|
Mar 29 | Suspense account | 1,500 | |
Cash | 1,500 | ||
(To record unknown transaction) |
After investigating, the accountant discovers that the deduction was the recently approved autodebit arrangement made with the bank for the outstanding balance of its business credit card. The entry should look like this:
Date | Account | Debit | Credit |
|---|---|---|---|
June 5 | Credit card liability | 1,500 | |
Suspense account | 1,500 | ||
(To record credit card payment) |
Best practices in using a suspense account
It’s not illegal or unethical to use a suspense account, which is a tool that enables bookkeepers to address discrepancies that can’t be fixed right away. To help you maximize its use, here are some best practices.
✅ Reconcile prior to month end.
I highly recommend that you reconcile your suspense account before month end so that monthly financial statements won’t have uncategorized transactions. It’s best if you start reconciling 10 to 15 days before monthly reporting, considering how long it’ll take to resolve discrepancies. Follow up with customers or responsible parties about missing documents and information for faster resolution of pending transactions.
✅ Set a maximum holding period.
Sometimes, not all transactions in the suspense account can be resolved before month end — and it might take longer than that to reconcile. That’s totally acceptable as long as you have a maximum holding period. There’s no magic number here, and you’d have to observe how often the suspense account is used for questionable or incomplete transactions.
A safe holding period would be 30 days so that suspense account items don’t stay there for over a month. If a particular transaction goes over the maximum holding period, it’s best to investigate and resolve it right away.
✅ Use the account as a temporary solution.
Say your bookkeeper is crafting monthly reports due tomorrow, and then suddenly, a transaction without details as to where or who it came from appears. Instead of dropping everything and solving the problem, the bookkeeper may dump this transaction in the suspense account and continue completing the monthly reports. That way, the transaction is already on their radar and pending reconciliation.
When the reports are submitted, the bookkeeper should revisit the ambiguous transaction and try to find a fix. Hence, a suspense account is only a temporary fix, especially if the amount isn’t material enough to affect decision-making.
However, if the items in the account are a common occurrence in your accounting system, there’s an underlying problem or inefficiency. It’s better to address those problems than to keep using the suspense account.
✅ Track transactions that always end up in the account.
Monitoring recurring transactions that consistently land in the suspense account can help identify patterns and prevent future misclassifications. Create a list of common transaction types, such as unidentified customer payments, bank reconciliation discrepancies, or partial invoices, and then investigate why they remain unresolved.
After that, modify the system so that these common transactions won’t end up in the account again. This way, all transactions get vetted and reviewed before entering the accounting system.
✅ Delegate responsibility over the account.
Assign a team member to check and reconcile the suspense account. They should review the account weekly, track unresolved items using an aging report, and prioritize clearing balances within the same accounting period. It is also good practice to limit access to the account to the person responsible for managing it.
Frequently asked questions (FAQs)
A suspense account is a temporary holding account used when a transaction cannot be immediately classified. It acts as a placeholder until the necessary information to record the transaction correctly is obtained. It helps ensure that financial records remain balanced while discrepancies, missing details, or unclear payments are investigated.
A suspense account can be either an asset or a liability, depending on the transaction type. If it holds unidentified payments or amounts that will eventually be classified as assets or income, it is treated as an asset. If it holds unknown deductions, prepayments, or amounts that will become expenses or liabilities, it is treated as a liability. Since it can have either a debit or credit balance, it doesn’t have a fixed classification.
A suspense account is temporary and used to hold unclassified or unclear transactions until they can be correctly categorized. In contrast, a control account is a permanent summary account that consolidates detailed information from subsidiary ledgers, such as A/R or A/P. While a suspense account is cleared as soon as the issue is resolved, a control account is continuously maintained to provide an overview of specific financial categories.
Bottom line
Use a suspense account sparingly, and clear it fast to avoid financial misstatements and audit headaches. Track transactions that often land there — like unidentified payments, bank mismatches, and partial invoices — and figure out why they keep showing up. Assign someone to own the account, review it regularly, and resolve items within a set timeframe.
Limit access to prevent misuse, document every entry, and ensure departments provide the information you need to classify transactions correctly. The goal is to rely on a suspense account as little as possible so that your financial records stay accurate and your close process runs smoothly