What Is a Suspense Account?
A suspense account is a section of a general ledger where an organization records ambiguous entries that still need further analysis to determine their proper classification and/or correct destination. A mortgage servicer may use suspense accounts to hold funds when a borrower falls short on a required monthly loan repayment, where the suspense account functions as a catch-all vessel that secures the funds. Similar to business suspense accounts, brokerage suspense accounts temporarily hold funds while transactions are completed. Suspense accounts are frequently used by mortgage lenders when a borrower accidentally falls short on a monthly payment, or if a borrower chooses to break up the monthly payment obligation into partial amounts. Regardless of the uncertainties in question, suspense accounts are cleared out once the confusion is resolved, at which time the funds are promptly re-shuffled to their correctly designated accounts.
Understanding Suspense Accounts
Suspense accounts contain entries where there are uncertainties or discrepancies. For example, if an individual makes a deposit but accidentally writes down an account number incorrectly, that money will be housed in a suspense account until the error is corrected. In another scenario, a customer may issue a payment, but fail to specify which invoice he intends to pay off with those funds.
Regardless of the uncertainties in question, suspense accounts are cleared out once the confusion is resolved, at which time the funds are promptly re-shuffled to their correctly designated accounts. At this time, the suspect account should theoretically achieve a balance of zero dollars. While there is no definitive timetable for conducting a clearing-out process, many businesses attempt to regularly accomplish this on a monthly or quarterly basis.
Mortgage Suspense Accounts
A mortgage servicer may use suspense accounts to hold funds when a borrower falls short on a required monthly loan repayment, where the suspense account functions as a catch-all vessel that secures the funds. At this time, the mortgage servicer may elect to distribute the partial amount received to various silos, including principal amount owed, accrued interest, property tax payments, and homeowner's insurance programs.
In some cases, a borrower deliberately makes partial payments, by intentionally dividing his monthly payment into two chunks. In such cases, mortgage servicers can use suspense accounts to house the first partial payment until the second payment is remitted. After receiving sufficient funds to make a full payment, the mortgage servicer then applies the combined balance to the correct account.
Brokerage Suspense Accounts
Similar to business suspense accounts, brokerage suspense accounts temporarily hold funds while transactions are completed. For example, if an investor sells off a group of securities valued at $500, but plans to quickly invest that amount of money in a different set of investments, the $500 from the sale would be moved to a suspense account until it can be allocated toward the new purchase.
The amount of funds held in suspense account is referred to as the "suspense balance."
Related terms:
Accounts Payable (AP)
"Accounts payable" (AP) refers to an account within the general ledger representing a company's obligation to pay off a short-term debt to its creditors or suppliers. read more
Accrued Interest & Example
Accrued interest refers to the interest that has been incurred on a loan or other financial obligation but has not yet been paid out. read more
Book Balance
Book balance is an accounting record of a company's cash balance reflecting all transactions and must be reconciled with the bank account balance. read more
Credit Ticket
A credit ticket is an accounting or bookkeeping transaction that generates a credit in the general ledger. Learn how credit and debit tickets differ. read more
Deposit in Transit
A deposit in transit is money that has been received by a company and sent to the bank, but it has yet to be processed and posted to the bank account. read more
General Ledger : Uses & How It Works
A general ledger is the record-keeping system for a company’s financial data, with debit and credit account records validated by a trial balance. read more
Petty Cash
Petty cash is a small amount of cash on hand used for paying expenses too small to merit writing a check. Learn how to balance petty cash in accounting. read more
Reconciliation
Reconciliation is an accounting process that compares two sets of records to check that figures are correct, and can be used for personal or business reconciliations. read more