Open and clear a suspense account to deal with a trial balance that does not agree

What this dot point is asking

SEAB wants you to open a suspense account when a trial balance does not agree, correct the one-sided errors through it, and clear it to nil. The central insight is that a suspense account is a temporary holding account: it absorbs the trial balance difference so the books can be used, and as each one-sided error is corrected, the matching entry goes to the suspense account until it empties.

The answer

When a suspense account is opened

If the trial balance totals disagree, the difference is placed in a suspense account on the side that makes the totals equal. This lets the bookkeeper proceed (even draft statements) while the errors are tracked down. The suspense account is temporary; it should clear to nil once all errors are found.

Which side the suspense balance goes:

• If the debit side of the trial balance is short, the suspense balance is a debit.
• If the credit side is short, the suspense balance is a credit.

What the suspense account corrects

Only one-sided errors pass through the suspense account - those that made the totals unequal:

• A casting error (over- or under-adding an account).
• A one-sided posting (only the debit or only the credit was made).
• An entry posted to the wrong side of an account.

Errors that keep debits equal to credits (omission, commission, principle, original entry, reversal, compensating) are corrected by an ordinary journal entry and do not touch the suspense account.

Clearing the suspense account

Each correction of a one-sided error includes an entry to the suspense account. As corrections are posted, the suspense balance falls. When every one-sided error is fixed, the suspense account totals to nil and is closed. If it does not clear, an error remains undiscovered.

Examples in context

Example 1. Drafting accounts before the hunt ends. A trial balance is \80$out near a reporting deadline. The bookkeeper parks the$\$80$ in a suspense account so the draft income statement and statement of financial position can be prepared on time, then finds and corrects the one-sided error afterwards, clearing the suspense to nil before finalising.

Example 2. A casting error caught. The Wages account was over-added by \60$, making the debit total$\$60$ too high, so the suspense opened with a \60$credit. Correcting the casting (Credit Wages$\$60$, Debit Suspense \60$) removes the overstatement and empties the suspense account, restoring agreement.

Try this

Q1. State when a suspense account is opened. [1 mark]

• Cue. Only when the trial balance totals do not agree, to hold the difference temporarily.

Q2. The credit side of a trial balance is \90$ short. State the suspense balance and its side. [2 marks]

• Cue. A credit balance of \90$ (placed on the credit side to make the totals agree).

Q3. Explain why an error of omission is not corrected through the suspense account. [2 marks]

• Cue. An omission leaves out both the debit and the credit equally, so the trial balance still agrees and there is no difference for a suspense account to hold.