The Suspense Account That Will Not Close
In the district office of a Uttar Pradesh department, the accountant closed the accounts for 2023-24 and prepared a trial balance in which the debit column totalled ₹9,84,750 and the credit column ₹9,79,710. The difference of ₹5,040 was taken to a suspense account, but the account was opened in the ledger with a balance of ₹5,400 because the figure was written wrongly. In the April audit, four items were traced:
(i) a credit purchase of ₹3,600 from M/s Ramesh Traders was correctly entered in the purchase book but posted to the supplier's account as ₹360; (ii) rent of ₹1,800 paid by cheque was posted twice to the Rent account; (iii) a cheque of ₹2,500 received from a debtor was posted to the account of a different debtor; (iv) wages of ₹4,000 paid for installing new furniture were debited to the Wages account.
The accountant now proposes to debit the suspense account with whatever balance remains and transfer it to the current year's expenditure, so that the account is closed before the audit report is signed.
1. For each of the four traced items, state whether it affects the suspense account and pass the rectification entry, giving reasons.
Read the worked answer
(i) Affects suspense. The supplier was credited ₹360 instead of ₹3,600, so the credit side is short by ₹3,240 - exactly why the debit side appears heavier. Entry: Ramesh Traders A/c Dr ₹3,240; To Suspense A/c ₹3,240.
(ii) Affects suspense. Rent was debited twice, so the debit side carries ₹1,800 too much. Entry: Suspense A/c Dr ₹1,800; To Rent A/c ₹1,800.
(iii) Does not affect suspense. The posting is on the correct (credit) side but in the wrong personal account; one debtor is overstated and another understated by the same amount, so the trial balance total is unaffected. Entry: Correct Debtor A/c Dr ₹2,500; To Wrong Debtor A/c ₹2,500.
(iv) Does not affect suspense. This is an error of principle - capital expenditure charged to revenue. Both accounts are on the debit side, so the total is unchanged. Entry: Furniture A/c Dr ₹4,000; To Wages A/c ₹4,000.
The rule to apply: only one-sided errors disturb the trial balance. Two-sided errors leave the total intact but still misstate the accounts, so they must be rectified by journal entry all the same.
2. After the entries for (i) and (ii) are passed, what balance remains in the suspense account? What does that balance indicate, and is the accountant's proposal to write it off to expenditure acceptable?
Read the worked answer
Suspense was credited with ₹5,400 although the real difference was ₹5,040. Entry (i) debits suspense by ₹3,240, leaving a credit balance of ₹2,160; entry (ii) debits suspense by ₹1,800, leaving ₹360 credit.
That ₹360 is exactly the excess of the wrongly recorded figure over the true difference (₹5,400 − ₹5,040). It is a transposition-type error in the suspense figure itself, not a fresh ledger error. It is also ten per cent of ₹3,600, so the wrong posting of ₹360 in item (i) should be re-examined for a second slip. The auditor should re-compute the trial balance from the ledger totals rather than accept the ₹5,400.
The write-off proposal is not acceptable. A credit balance in suspense is not income; writing it to expenditure would understate expenditure and bury the real error. Suspense is a temporary account, to be cleared only by rectification of identified errors, and no entry may be passed merely to make a balance disappear.
3. State the corrected total of the trial balance after all four rectifications, and show the arithmetic.
Read the worked answer
After all four rectifications the suspense account stands at nil.
Debit column: it loses the duplicated rent of ₹1,800 → ₹9,84,750 − ₹1,800 = ₹9,82,950. Credit column: it gains the missing ₹3,240 on the supplier's account → ₹9,79,710 + ₹3,240 = ₹9,82,950.
Items (iii) and (iv) merely move amounts between accounts on the same side and change nothing in the totals. The corrected trial balance therefore agrees at ₹9,82,950 on each side.
Note the sequence: the ₹360 taken to suspense disappears automatically once the correct difference of ₹5,040 is recognised, because the suspense account is written back as the one-sided errors are rectified. Had the accountant written the ₹360 to expenditure first, the corrected totals would never have agreed and the error would have been permanently concealed.