Purpose of a Suspense Account
A Suspense Account is a temporary account used to make the Trial Balance agree when a one-sided error has occurred.
Exam Alert: Errors the Trial Balance Misses
Not every mistake will cause the Trial Balance to disagree. If double entery rule is followed (a debit for every credit) but the wrong account or wrong amount is used in both places, the total will still match. These are the "hidden"errors
The 6 Errors that do NOT affect a Suspense Account:
- Error of Omission:A transaction is completely left out of the books.
- Error of Commission:An entery is made in the wrong account, but the correct class of account(e,g., posting to "A.Smith" instead of "B.Smith").
- Error of Principle:An entery is made in the wrong class of account(e.g., treating a motor vehicle repair as an asset instead of an expense).
- Error of Original Entry:The wrong amount is recorded in the book of prime entery, so both the debit and credit are wrong by the same amount.
- Complete Reversal of Entries:The correct accounts and amounts are used, but the debit and credit are swapped.
- Compensating Errors:Two or more separate errors cance each other out by coincidence.
Comparison: When is a Suspense Account Used?
| Type of Error | Trial Balance Agreement? | Suspense Account Needed? |
|---|---|---|
| Casting Error (Addition error) | Disagrees | Yes |
| Single Entry (One side only) | Disagrees | Yes |
| Error of Principle | Agrees | No |
| Error of Omission | Agrees | No |
| Compensating Error | Agrees | No |