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+--- Thread: Suspense of Suspense Account (/showthread.php?tid=1306)
Suspense of Suspense Account - Team McLaren Mercedes - 11-23-2004
The suspense of suspense account is killing me. We all know that there might be situations when two sides of a Trial Balance are not in agreement with each other which is due to the errors committed by the accountant in the subsidiary books or ledgers (which may pertain of posting of wrong amounts or miscast etc.) and a mysterious "Suspense Account" is opened to eradicate the difference. Whenever the errors are rectified later on, the suspense account is eliminated and everything becomes OK.
But the question is, at the end of financial period, if the error is not detected and therefore, not rectified, what would be the treatment of that newly created Suspense A/C? The contents of Trial Balance have a single effect (single entry) Therefore, it sould eiter go to the Income Statement/Trading Profit & Loss A/C or the Balance Sheet. Where does it lie? And more importantly, is it further continued or not? If not, why? <img src=icon_smile_question.gif border=0 align=middle>
Life Life in the Fast Lane!
- CBPian - 11-24-2004
Suspense account can have many reasons but simply its the difference between the credit and debit side of the trial balance resulting in the books out of balance.
Remember suspense account is created to balance the books.... it is not created to account for something missing... of course it means that somehow only one side of a transaction was posted initially.
Suspense account is shown as an asset or liability on the balance sheet although.. it reflects very poorly on the accountant. Normally suspense accounts are eliminated before financial statements are drawn up (taken to income or expense unless material) and in modern accounting systems (computer based), these kind of accounts are thing of the past.
There is another category of suspense account where e.g. we receive cash from our customers but do not have enough identification to credit it to their account; these are sometimes called unapplied cash/ unidentified cash. However, this does not affect the balance of the books as the problem lies in the subsdiary ledgers only.
- jbladeus - 11-24-2004
hi TMM
You heard of the phrase "Balli lagaana"? Suspense account is exactly that type of a temporary accounting "balli". <img src=icon_smile.gif border=0 align=middle>
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Arrrgh... it sure's gonna be mighty rough sailin' today ... mates!
- smraza - 11-24-2004
<BLOCKQUOTE id=quote><font size=1 face="Verdana, Tahoma, Arial" id=quote>quote<hr height=1 noshade id=quote>
But the question is, at the end of financial period, if the error is not detected and therefore, not rectified, what would be the treatment of that newly created Suspense A/C? The contents of Trial Balance have a single effect (single entry) Therefore, it sould eiter go to the Income Statement/Trading Profit & Loss A/C or the Balance Sheet. Where does it lie? And more importantly, is it further continued or not? If not, why? <img src=icon_smile_question.gif border=0 align=middle>
<hr height=1 noshade id=quote></BLOCKQUOTE id=quote></font id=quote><font face="Verdana, Tahoma, Arial" size=2 id=quote>
Treatment being an accountant
first of all try to locate the difference, if fails to do so, then make a fake party M/s ABC & Co. and put that in the list of creditors or Advances or debtors etc., and pray that auditor ignores or neglect it.
Treatment being an auditor
Suppose there is a difference to Rs.100,000/- only in 2 Bn Balance sheet. Imagine that the difference is a result of Rs.10,000,000 Dr. and Rs.10,000,000 Cr.
then issue the report containing following remarks.
Proper books of account have not been kept by the compnay as required by so and so, even the double entry system of accounting has not been followed by the company. In view of above we are unable to form any opinion.
(Keep in mind if the company contributes a handsome account to your revenue then take above risk otherwise 'Being Immaterial, Ignored' <img src=icon_smile_big.gif border=0 align=middle><img src=icon_smile_big.gif border=0 align=middle><img src=icon_smile_big.gif border=0 align=middle><img src=icon_smile_big.gif border=0 align=middle>)
SMR