The Suspense Account
A suspense account is a tool that can be utilized for different purposes depending on the business context. Generally, companies record ambiguous entries into a suspense account, which will be analyzed further to determine their accurate categorization. Regardless of the business context, these accounts are intended to be temporary.
Suspense accounts are in a company’s general ledger. Any uncertainties or discrepancies that need resolving are entered as an entry in a suspense account. Once the issue is resolved, suspense accounts are emptied. The funds that were in the suspense account are placed into their proper accounts and the balance in the suspense account should be zero dollars.
There is no deadline for companies to clear out their suspense accounts, however, most companies try to go through it monthly or quarterly.
The main benefit of suspense accounts is that they allow companies to set aside transactions with issues, which helps maintain the accuracy of their financial statements. After resolving the issue, companies can move those funds into their accurate account, further ensuring that all of their financial statements are correct and up to date.
The Clearing Account
A clearing account is an account where companies record entries that will soon be transferred to another account. The main purpose of a clearing account is to hold payment details prior to the transaction finalization.
A business may use a clearing account to document things such as sales, fees, taxes, or other expenses that have yet to be fully and properly accounted for. Managing accounts receivable of unpaid invoices may be more difficult to manage without a clearing account.
Some businesses clear out their clearing accounts daily, while others may do it monthly or quarterly. Once the clearing account is cleared, the balance should be zero and the main accounting ledger should be accurate and complete.
Difference Between Suspense and Clearing Accounts
Both the suspense and clearing accounts are temporary accounts that hold entries that will later be transferred to a main account. The main difference is that a suspense account is usually used when an issue arises or there is a question or concern about a certain transaction that needs to be solved before being transferred to a permanent account. On the other hand, the clearing account is usually used for holding payments before the finalization of a transaction or before they are fully accounted for.
These temporary accounts are critical to bookkeepers and accountants. They ensure that any transactions that are not yet complete or that may be questionable have a holding place, allowing financial statements to remain accurate while also ensuring that every transaction is recorded somewhere.
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