Overview
This lecture explains the purpose, use, and correction process of the suspense account, focusing on its function in balancing the trial balance and correcting accounting errors.
Introduction to Suspense Account
- The suspense account is used when the trial balance does not balance due to errors.
- It temporarily records the difference between debit and credit columns in the trial balance.
- The suspense account is a T-account, treated like other accounts for postings.
- It is a temporary account and should have no balance once errors are corrected.
- The suspense account does not appear in financial statements and has no category (not asset, liability, income, expense, or capital).
Steps to Use the Suspense Account
- Add up totals of debit and credit columns in the trial balance.
- Calculate the difference between these totals.
- Add a suspense account to the trial balance with the difference posted in the column with the lower total.
- Re-add both columns to ensure the trial balance balances.
Correcting Errors with the Suspense Account
- Identify and draw the incorrect account(s).
- Enter any balance brought forward (erroneous entries already posted).
- Determine the correcting double entry: post the necessary debit/credit to fix the error.
- Post the other side of the correcting entry to the suspense account.
- Repeat for all identified errors.
- After all corrections, the suspense account should balance to zero.
Example Corrections
- Missing wages: Debit the wages account, credit the suspense account.
- Rent received posted to rent paid: Credit rent paid and debit suspense account; credit rent received and debit suspense account.
- Overcast sales revenue: Debit sales revenue and credit suspense account.
Key Terms & Definitions
- Suspense Account — A temporary account for differences in the trial balance until errors are corrected.
- Trial Balance — A statement of all debits and credits in the ledger to ensure they balance.
- Double Entry — Accounting system where every entry to an account requires a corresponding and opposite entry to a different account.
- Overcast — When an account is added up incorrectly to a higher total.
Action Items / Next Steps
- Review the section on trial balances before practicing suspense account corrections.
- Practice correcting sample errors using a suspense account.
- Visit www.studytheeasyway.com for additional free and subscriber resources.
- Follow on Instagram for weekly accounting questions and sample problems.