What is a Suspense Account?
Anytime there’s uncertainty about where a financial transaction is to be recorded, it gets reported in what’s called a “suspense account.” The purpose of suspense accounts is common knowledge among those who work in accounting, and even more so for third party companies that provide accounting services for small business clients. But unless bookkeeping and accounting are your life and part of your daily routine, you might be confused about how it all works. Here’s a quick explanation.
Say your accounts receivable department receives a check from a customer for $500 with no invoice attached telling you where to apply the payment. You probably won’t have trouble finding record of that customer owing you money, but without something to tell you exactly where to apply the payment – past due invoices or recent transactions? – your accounts receivable has nothing more to go on.
You could handle this situation in one of two ways: hold the deposit of the payment until the customer can be contacted or until your bookkeeper can perform the necessary research, or park the payment in a suspense account. Most third party accounting services for small business opt for the latter, reminding you that it’s not just a question of practicality, but one of serious importance. Here’s why.
Holding off on depositing receivables until you have all the facts in hand can result in inaccurate financial statements, especially if it takes a long time to reconcile and if the unidentified payment isn’t an isolated incident (which it rarely is). Although it’s critical for a business’s accounting department to establish a suspense account to address these issues, not all do, which often causes a reconciliation glut down the line.
This is a perfect example of how online accounting solutions offered by third party bookkeeping firms can play an integral role in not only the accurate completion of daily tasks, but also on the financial health of a business. In the hands of an outsourced account firm, unidentified payments put into suspense are processed and reconciled faster than you can say “Let’s get an expert on that.”