The Suspense Account (Cambridge International A-Level Accounting)

Suspense account

Spec point — how to prepare ledger accounts and journal entries to correct errors using a suspense account

What is a suspense account?

• A suspense account is used to correct errors when the totals in the trial balance are not equal

• It is a temporary account

  • It should be fully balanced once all the errors are corrected

Exam Hint If the account is not balanced after correcting errors, then there are still unidentified errors in the other accounts.

How do I use a suspense account to correct errors?

• STEP 1 Find the difference between the total debits and the total credits on the trial balance

• STEP 2 Enter the difference into a suspense account on the side which has the lower total

  • Call the entry “Difference on trial balance”

• STEP 3 Make entries into the ledger accounts to correct the errors

  • Label the entries as “Suspense account”

• STEP 4 Balance these entries by making corresponding entries into the suspense account

  • These entries will be on the opposite side to the entries that corrected the error

• STEP 5 Close the suspense account once all the errors have been corrected

  • The suspense account should automatically be balanced

    • If not, there are still errors

How do I find the difference in the totals on the trial balance?

• If you have the trial balance, simply subtract the smaller total from the larger total

• Sometimes you will not be given the trial balance

  • You could be given a list of errors and asked to find the difference in the totals on the trial balance

• Correct the errors using the suspense account

• Balance the suspense account

  • Label the balancing entry as “Difference on trial balance”
  • The side that this entry appears on is the side which had the smaller total on the trial balance

Exam Hint You might still be asked to make journal entries alongside a suspense account. Remember that one of the accounts for each journal entry should be the suspense account.

Worked Example Jonas prepared a trial balance on 31 March 2024 and the totals were not equal. Credits were $590 higher than debits. The following errors were identified.

1. Credit purchases of $850 to Nicki had been correctly entered in the purchases account, but credited as $580 in Nicki’s account.
2. The sales account had been overstated by $740.
3. Discount allowed, $400, had been credited to the discount received account.
4. Vehicle expenses, $50, had been debited to the vehicles account.
5. A payment of $260 from a credit customer, Timmy, had been entered correctly into the cash book but had been debited to Timmy’s account.
6. Purchases returns, $160, had been entered correctly in the purchases ledger but had been omitted from the purchases returns account.

Prepare the suspense account to correct the errors. Start with the difference on the trial balance.

Answer:

The debit total was smaller on the trial balance, so put the difference on the debit side of the suspense account.

Deal with the errors one at a time.

1. Credit $270 to Nicki’s account ($850 - $580), then debit the suspense account.
2. Debit $740 to the sales account to reduce it, then credit the suspense account.
3. Discount allowed should have been debited to the discount allowed account. Debit $400 to the discount received account and debit $400 to the discount allowed account. Then credit the suspense account.
4. This is an error of principle that does not affect the balancing of the trial balance. Therefore, no entries are made into the suspense account to correct the error.
5. Timmy’s account should have been credited. Credit $260 to Timmy’s account twice, once to undo the incorrect posting and once to enter the correct posting. Then debit the suspense account.
6. Credit $160 to the purchases returns account. Then debit the suspense account.

Final answer: Suspense Account

Final answer: Date	Final answer: Details	Final answer: $**	Final answer: Date	Final answer: Details	Final answer: **$
Final answer: 2024 Mar 31	Final answer: Difference on trial balance	Final answer: 590	Final answer: 2024 Mar 31	Final answer: Sales	Final answer: 740
	Final answer: Nicki	Final answer: 270		Final answer: Discount allowed	Final answer: 400
	Final answer: Timmy	Final answer: 520		Final answer: Discount received	Final answer: 400
	Final answer: Purchases returns	Final answer: 160
		Final answer: 1 540			Final answer: 1 540