## **Learning Outcomes**

After completing this article, you will be able to explain the purpose of suspense accounts, identify the types of bookkeeping errors that give rise to suspense balances, prepare journal entries to correct such errors and clear suspense accounts, and understand the effect of these corrections on the trial balance and financial statements—all as required for the ACCA Maintaining Financial Records (FA2) exam.

## **ACCA Maintaining Financial Records (FA2) Syllabus**

For ACCA Maintaining Financial Records (FA2), you are required to understand how suspicious balances in the suspense account are handled and corrected. In particular, this topic relates to:

- The purpose of, and reasons for, creating a suspense account
- Identification of errors leading to suspense accounts in the trial balance
- The process and journal entries for correcting errors and clearing the suspense account
- Impacts of corrections on the trial balance and financial statements

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. What is the main reason for the existence of a suspense account in a set of accounting records?
2. Which of the following errors will cause the trial balance totals to be unequal?
   a) Complete omission of a transaction  
   b) Posting only one side of a transaction  
   c) Transferring a balance to the wrong account of the correct type  
   d) Transactions entered with the wrong amount, but equal debits and credits
3. True or false? Errors that affect only one side of the double-entry are usually corrected through a suspense account.
4. Which journal entry is required to clear a suspense account when \$500 cash received from a customer was posted only to the bank account, with no corresponding credit to receivables?

## **Introduction**

A suspense account serves as a temporary tool to ensure the double-entry system can continue operating even when the correct destination of an entry is unclear or when errors create imbalances in the trial balance. In practice, suspense accounts are most often used in manual or legacy systems where discrepancies must be resolved before finalising financial statements.

Understanding how suspense accounts are opened, identified, and ultimately cleared through appropriate journal corrections is critical to maintaining accurate accounting records and to success in your FA2 exam.

> **Key Term: Suspense account**
> A temporary general ledger account used to record discrepancies or incomplete entries when the correct account is not yet known, or to temporarily balance a trial balance containing errors.

## **WHEN AND WHY SUSPENSE ACCOUNTS ARE USED**

### Occurrence of Suspense Accounts

A suspense account is created whenever the unequal posting of debits and credits causes the trial balance not to agree. This could arise from incomplete entries, single-sided errors, or uncertainties about which account to credit or debit.

#### Common situations include

- Only one side of a transaction is recorded due to lack of information.
- Errors in entering unequal debit and credit amounts.
- Accidental omission of an account code, causing a balancing item.

> **Key Term: Trial balance**
> A list of all general ledger accounts and their balances at a specific date, used to check the arithmetical accuracy of the double-entry bookkeeping.

## **TYPES OF ERRORS LEADING TO SUSPENSE ACCOUNTS**

Errors that generate suspense balances are usually those that cause the totals of the trial balance to disagree. Common examples:

- **Single-entry error:** Only the debit or the credit is posted.
- **Unequal amounts posted:** Debit and credit entries for a transaction do not match.
- **Incorrect account posting:** Entry is posted to an unrelated suspense account rather than the correct account as a temporary measure.

> **Key Term: Error of omission**
> Failure to record both sides of a transaction in the accounting records.
>
> **Key Term: Error of original entry**
> Both the debit and credit sides of a transaction are posted using the wrong amount.
>
> **Key Term: Error of commission**
> A transaction is posted to the correct type of account but to the wrong individual account.

### Errors NOT Creating Suspense Balances

Some errors will NOT cause suspense balances because both sides of the double-entry are present, even if incorrect. Examples include errors of principle (wrong account type), commission (wrong account), complete reversal of entries, or compensating errors (two errors cancel each other's effect).

## **CORRECTING ERRORS AND CLEARING THE SUSPENSE ACCOUNT**

All errors must be corrected as soon as identified. The process involves:

1. Determine the correct double-entry that should have been made.
2. Identify the incorrect or incomplete entries that were actually made.
3. Prepare a journal entry that both reverses any incorrect entries (including those posted to suspense) and posts the correct entries.

### **Worked Example 1.1**

**The trial balance of Finn Ltd is out of balance by \$800 (debit overweight). On investigation, the following is discovered: cash received from a customer, \$800, was posted only to the bank account. The corresponding credit to receivables was omitted. How should the error be corrected and the suspense account cleared?**

> **Answer:**
>
> - The \$800 was posted as a debit to bank only. No credit entry was made, causing a suspense account with a \$800 credit balance.
> - Journal to correct:
>   - Debit: Suspense account \$800
>   - Credit: Receivables \$800

### **Worked Example 1.2**

**A new asset costing \$5,000 was purchased on credit, but only the supplier (payables) account was credited—no debit entry was made. What journal entry is required to correct this and remove the suspense account?**

> **Answer:**
>
> - Credit to payables account exists, but the corresponding debit was missing, triggering a suspense account with a \$5,000 debit.
> - Journal to correct:
>   - Debit: Asset account (e.g., Equipment) \$5,000
>   - Credit: Suspense account \$5,000

### How to Present the Correcting Journal

Clear labelling and concise explanations are required in the journal, such as:

| Date                           |                         | Debit ($) | Credit ($) |
| ------------------------------ | ----------------------- | --------- | ---------- |
| Day/mo                         | Suspense                | [amount]  |            |
|                                | Account                 |           |            |
|                                | Account to be corrected |           | [amount]   |
| Explanation of error rectified |                         |           |

### **Exam Warning**

> Errors leading to suspense balances rarely affect only income or only expenses. Always check the effect of your error correction on both the profit or loss and the statement of financial position, and make sure to clear the suspense account completely.

## **IMPACT OF JOURNAL CORRECTIONS ON THE ACCOUNTS**

Once errors are identified and correcting journals posted, the suspense account must have a nil balance if all errors are correctly resolved.

Correction entries may impact:

- Expense or income recognition (profit effect)
- Asset, liability, or capital account balances (position effect)

It is common for several errors to have accumulated in suspense, requiring more than one correcting journal to clear it. Ensure you identify all reconciling journals to remove the suspense balance.

## **Summary**

Suspense accounts are temporary holding accounts for discrepancies caused by incomplete or single-entry errors. Their purpose is to allow the accounting system to function until the correct destination for transactions is known. Every error leading to a suspense balance must be identified and corrected via a journal entry that both reverses the suspense posting and records the proper entry. Clearing the suspense account before preparing financial statements is essential for accurate reporting.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Explain the main purpose of a suspense account in bookkeeping
- Identify types of errors that result in suspense balances
- Prepare correcting journal entries to clear suspense accounts
- Recognise which errors do not affect the trial balance totals
- Understand the financial statement effect of correcting such errors

## **Key Terms and Concepts**

- Suspense account
- Trial balance
- Error of omission
- Error of original entry
- Error of commission

Suspense account and corrections - Journal corrections to clear suspense