A suspense account is an account in the general ledger that is used to temporarily store transactions that require further analysis before a permanent assignment in the records can be made.
The use of a suspense account allows time to research the nature of a transaction while still recording it on the company’s books. Typical uses include:
Payments received with invalid account information, unclear information as to which invoice payments should be applied, or other issues that prevent their normal posting
In-transit transactions where money has been transferred to a supplier bank but not yet deposited into an account, or where money is received before a policy or contract is written
Booking of transactions before an allocation is made to the appropriate cost or profit centers
Amounts subject to legal dispute
While businesses of all sizes normally include a suspense account within their accounting scheme, they are of particular concern to insurance companies. A typical insurance company could have hundreds of suspense accounts (20–25 percent of their total balance sheet accounts) that hold thousands of items.
What is the process for managing suspense accounts?
Suspense accounts allow transactions to be posted before there is sufficient information available to create an entry to the correct account or accounts. Without posting such transactions, there may be transactions that are not recorded by the end of a reporting period, resulting in inaccurate financial results.
However, it is important to remember that items in a suspense account represent unallocated amounts. As a result, having a suspense account presented on the financial statements with a balance is generally viewed negatively and can weaken the statement to outside investors. Thus, effort should be made to clear suspense accounts at the end of each financial period.
Suspense accounts are cleared by reviewing each individual transaction in the account. The objective for reviewing items is to shift the transaction to the appropriate account as soon as possible.
Transactions will be more difficult to clear as time passes, especially if there is minimal documentation as to why the transaction was initially placed in the account. For this reason, the age of items should be tracked and minimized.
Suspense accounts are also considered a control risk. As a requirement under Sarbanes-Oxley (SOX), these accounts must be analyzed by type of product, aging category, and business justification in order to understand what is still in the account. This information needs to be provided to auditors periodically as well.
What solutions does BlackLine offer for managing suspense accounts?
This product integrates with all major ERP systems, importing the item count, aging, and business justification details of suspense accounts on a periodic basis. This allows all suspense accounts to be monitored and reported on from one centralized location.
Aging and business justifications categories are customizable, and reports identify high-risk items across multiple suspense accounts at one time. In addition, the business justification section of this template has its own unidentified amount calculation. This is based on the difference between the items in the “more than 90 days” aging categories from the ERP system and the items that have been reconciled within the Account Reconciliation product.
BlackLine Journal Entry is a full Journal Entry Management system that integrates with the Account Reconciliation product. It provides an automated solution for the creation, review, approval, and posting of journal entries, and is also useful in creating entries to distribute suspense account transactions to the appropriate accounts.