A suspense account is used as a permanent record of a specific type of transaction.
False
What is the primary purpose of a suspense account?
Temporary holding for unidentified transactions
Incomplete information may require the use of a suspense account as a temporary holding place
The balance of a suspense account should ideally be zero after reclassification.
True
Steps for setting up a suspense account
1️⃣ Create the account in the ledger with a suitable name
2️⃣ Record the unidentified transaction in the suspense account
The purpose of a suspense account is temporary holding for unidentified transactions
What should the balance of a suspense account be after all transactions are reclassified?
Zero
Why is maintaining a log important when using a suspense account?
Track transaction details
When recording a transaction in a suspense account, the amount is entered on the debit side
Suspense accounts are used to resolve timing differences and errors in recording transactions.
True
What type of discrepancy arises when a transaction has occurred but not yet been recorded?
Timing difference
What is the primary purpose of a suspense account?
Temporary placeholder
Key differences between a suspense account and a normal account
1️⃣ Purpose: Temporary holding vs. permanent record
2️⃣ Duration: Short-term vs. long-term
3️⃣ Reclassification: Transactions moved vs. remain
4️⃣ Balance: Temporary vs. ongoing
Incomplete information about a transaction can lead to its placement in a suspense account.
True
Match the characteristic with the correct account type:
Temporary holding ↔️ Suspense Account
Permanent record ↔️ Normal Account
What is one reason for using a suspense account?
Errors in transactions
Suspense accounts are used when there is incomplete information
Steps for setting up a suspense account
1️⃣ Create ledger account
2️⃣ Document setup
To record a transaction in a suspense account, the amount is entered on the debit
Steps for clearing a suspense account
1️⃣ Investigate transactions
2️⃣ Reclassify entries
3️⃣ Update transaction log
The transaction log should be updated after reclassifying entries from a suspense account.
True
What happens to a transaction in a suspense account once the correct invoice is identified?
Moved to accounts receivable
The balance of a suspense account should be ongoing and reflect activity in that account.
False
Transactions recorded in the wrong account initially are held in the suspense account until reclassified.
True
Transactions without enough details to record in the correct account are held in the suspense account until the necessary information is obtained.
True
The first step in clearing a suspense account is to debit the suspense account.
True
After clearing a transaction from the suspense account, the transaction log must be updated with new account details.
True
Leaving transactions in the suspense account indefinitely can lead to inaccurate financial reporting.
True
Transactions without enough details to record in the correct account are temporarily held in the suspense account until the necessary information is obtained.
What is a suspense account used for in accounting?
Temporary holding for unidentified transactions
The duration of a suspense account is short-term
Timing differences are a common reason for using a suspense account.
True
How does a suspense account differ from a normal account in purpose?
Temporary placeholder vs. specific category
Transactions in a suspense account are later transferred to appropriate accounts
What happens to a transaction once the necessary information is obtained for a suspense account?
Moved to proper account
The duration of a suspense account is long-term, similar to a normal account.
False
When creating a suspense account, it should be named to indicate its temporary nature
A suspense account is used as a permanent record of transactions.
False
What is the final step in clearing a suspense account?
Reclassify entries
Suspense accounts are used to hold transactions recorded in the wrong account