What is a suspense account?

Definition of a suspense account

A suspense account is a short-term holding bay in your business's general ledger. If you really don't know where to put a particular transaction in your accounts, the suspense account is your point of last resort.

You should avoid using the suspense account if at all possible because, ultimately, either you or your accountant will have to work out where any transactions in the suspense account really belong.

You might not know all your business's opening balances. When you're posting those that you do know, you'll need to put in a balancing entry to your suspense account because there must be equal and opposite debit and credit entries on the opening balances entry screen. This balancing entry will be removed once you find out what the missing opening balances should be.

Example of a suspense account:

Open Door Networking Ltd knows that as of 1st April, it was owed £5,000 by its customers and owed £2,000 to its suppliers in unpaid bills. After posting a debit of £5,000 to opening trade debtors, and a credit of £2,000 to opening trade creditors, its opening balance screen is missing £3,000 on the credit side because both the debit and credit sides must be equal. Because of this, it posts an opening credit of £3,000 to the suspense account.

Once the company knows its other opening balances as at that date, such as fixed assets, bank balances, and corporation tax, it will enter those and remove the £3,000 in the suspense account.

Disclaimer: The content included in this glossary is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this glossary. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.

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