Hello Everybody, I was wondering if anybody could give me some advice on Suspense Accounts as I am finding it all very confusing! When should an entry go into an S/A and are there any easy rules of remembering. For example I have the following questions/corrections to do:
an invoice for 3,000 for purchases has been completely omitted from the books - do I just do a correction to the double entry accounts?
the purchase account has been undercast by 600 - (don't know where to start!).
and the list goes on.....
Any help gratefully received. Just when I thought I was getting to grips with level one C&G, I feel like giving up!
A suspense account is usually created when a trial balance is taken and it doesn't balance.
There are a number of errors that can cause this to happen. These could be things like a transposition of figures, accounts added up incorrectly or one part of the double entry has not been made.
The easiest way to remember (for me anyway) is to identify the two (or three or more) accounts that the transaction would affect. If one of the entries was made incorrectly it will throw up a suspense account for example sales of £55 was posted to the bank correctly but to the sales account as £50. This would create a credit balance in the suspense of £5. Simply debit suspense and credit sales with the £5.
If an entry has been completely omitted from the books, it means neither entry has been done and you must do both entries (debit purchases and credit bank/creditors)
When it says an account has been undercast by an amount, it means that it has not been balanced correctly. For example purchases balance should be £6,600 but has been transfered to the Trial Balance as £6,000. This creates a credit suspense of £600. Simply adjust the TB by increasing the purchases by 600 and reducing the suspense by 600
Thank you so much for your reply. I am still just not getting it though and am on the verge of giving up! Are there any easy ways to remember what to do? I cannot understand this question:
stationery expenses £48 have been debited to both the stationery account and the bank account - so the journal entry is:
DR Suspense
CR Bank
DR Suspense
CR Bank
Why are there so many entries, and why does it now need to total 96? I could cry, I just do not understand. Helpppppp.
On the credit side of you trial balance it will be understated by 96, because, it is short of the amount which should be. Credited to the bank, now the debit side has an extra debit from where the entry has been incorrectly entered. Now, the suspense account has a credit balance, to remedy this, debit suspense, then credit bank, this then makes the original entry void, then finally, debit suspense with 48, credit bank 48. Now the entry is correct, the suspense account has no balance, and the trial balance will be level.
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
When looking at any entry you should be able to describe it in terms of the flow of money - for the stationery the flow would be money out making the bank a credit and the expense account 'stationery' a debit to give both halves of the double entry.
Because both entries have been made as debits, while the stationery account is fine the bank account is not. You first need to 'take out' the wrong entry by reversing it - credit the bank to 'remove' the wrong entry. You then need to enter the correct posting - credit the bank to pay for the goods. So you effectively credit the amount twice in order to make the correction.
Thank you so much for your reply. I am still just not getting it though and am on the verge of giving up! Are there any easy ways to remember what to do? I cannot understand this question:
stationery expenses £48 have been debited to both the stationery account and the bank account - so the journal entry is:
DR Suspense
CR Bank
DR Suspense
CR Bank
Why are there so many entries, and why does it now need to total 96? I could cry, I just do not understand. Helpppppp.
Kind regards.
Perhaps the way to think of it is, Q: What should the original entries have been? A: Dr Stationery and Cr Bank
Q What is the effect of the incorrect Bank entry? A: Bank has a Dr of £48 instead of a Cr for £48, a difference of £96.
Another way of looking at it is that the original, unbalanced situation could only result in a balanced trial balance if the entries were balanced with suspense entries i.e. Dr Stationery £48 Cr Suspense £48 (to balance this part) and Dr Bank £48 Cr Suspense £48 (to balance the second part)
The question therefore implies Dr Stationery £48 (correct), Dr Bank £48 (incorrect by £96 - shb Cr £48) and Cr Suspense £96 (incorrect by £96 - Suspense should be empty in an ideal world).
The two step journals to correct it are as given in the quote. I'd probably just do Dr Suspense £96 and Cr Bank £96 to get rid of the suspense balance and change the incorrect Dr Bank £48 into Cr Bank 48
I hope this helps. Don't give up - we've all been there at one time or another.
Regards
-- Edited by bro0010 on Wednesday 22nd of January 2014 11:17:57 PM
Well hopefully with three different ways to say the same thing it gives a better chance of understanding!
Don't give up Helen - these first stumbling steps are the hardest! In a few months you'll wonder why you had a problem and how you could possibly have thought this hard :)
Thank you for your reply. Why would the credit side of my trial balance be understated by £96 - when the only wrong entry is for £48 - sorry for being thick.
The credit side is missing 48. And there is an extra 48 on the debit side, which shouldn't be there. If you have two baskets, one on the left has 2 oranges and 1 apple, and a basket on the right has only 1 apple, the total would be, 3 items in one and 1 in the other. Now, although only 1 apple is misplaced, the total is out by 2.
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
