What Is a Suspense Account?
As a small business owner in Canada, you encounter many documents and terms that go along with them. Depending on how long you’ve been in business, you may or may not have come across suspense account transactions.
As its name implies, this account is reserved for an unidentified transaction. It remains temporarily suspended until further research reveals its destination or classification. Suspense account transactions are also attributed to the world of investing.
An investor may use suspense account transactions to place their current asset until they can use it for other investments.
Here’s What We’ll Cover:
Why Use Suspense Accounts?
Suspense account transactions consist of entries with discrepancies or uncertainties. For instance, let's say someone makes a deposit yet accidentally writes the wrong account number. The money gets placed in a suspense account until the issue gets fixed.
In another example, let’s say a customer plans to make a payment. However, they don’t say which account they’re paying on. Even with uncertainty, the suspense account transactions get cleared once the confusion clears up. And the funds will be immediately switched over to the correct account.
What’s more, the suspense balance would ideally reach $0. There isn’t a clear timetable for the liquidation process. But many companies try to complete this process on a monthly or even quarterly basis.
Other Types of Suspense Accounts
What happens if a borrower is unable to repay a loan on a monthly basis? The mortgage service provider can use suspense account transactions to hold the funds. And the default suspense account acts as an all-purpose vessel to ensure the safety of the funds.
Then, the mortgage service provider can choose to allocate part of the funds received elsewhere. This includes the principal owed, property taxes, accrued interest, and homeowners’ insurance plans.
In some instances, the borrower divides their monthly payment in two, thereby making a partial payment. Here, the mortgage servicer can use suspense account transactions to deposit the first half of the payment.
It would stay there until remittance of the other partial payment. After getting enough funds to pay in full, the servicer will put the total suspense account balance into the appropriate account.
This is like a commercial suspense account. A brokerage suspense account holds funds until the financial transactions are complete. A good example is if an investor chooses to sell $500 worth of securities.
However, they plan to quickly invest their sale in another group of investments. As such, the $500 the investor made will be put into a default suspense account via suspense account transactions. That money remains there until the investor can put it toward a new purchase.
Suspense account transactions play an essential role. They ensure that your funds go to the right place. Whether you are a new or seasoned business owner, you should have accounting software to help you.
With FreshBooks, you get accounting tools that make your business run smoother. Bookkeeping has never been easier thanks to FreshBooks’ double-entry accounting. Your figures will be accurate and your amounts equal when you have FreshBooks in your corner.
Try it free and see what all the hype is about. You will gain essential control over your small business that you never thought possible. And you can manage your affairs all from your smartphone, tablet, or computer.
And for even more small business insights and tips, be sure to check out our Resource Hub. There, we discuss the specifics of business registration, taxes, and more.