Suspense Account: Which Errors Affect It and How to Clear It
Mzuzu Retailers extracted its trial balance at 31 December 2024 and found that total credits exceeded total debits by MWK 438,000. A suspense account was opened with that debit balance. The following errors were then found: (i) a credit sale of MWK 96,000 to T. Banda was completely omitted from the books; (ii) rent of MWK 240,000 paid by cheque was entered correctly in the cash book but posted to the rent account as MWK 24,000; (iii) a credit purchase of MWK 180,000 from K. Phiri was posted to the sales account; (iv) a cheque of MWK 75,000 for electricity was correctly entered in the cash book but posted to the water account; (v) a customer's cheque for MWK 130,000 returned dishonoured was entered in the cash book but not posted to the customer's account; (vi) discount allowed of MWK 46,000 was posted to the discount received account, although the customer's account was correctly credited. The junior accountant wants to clear the suspense account by writing it off to profit or loss.
1. Identify which errors affect the suspense account and calculate the amount by which each does so.
Read the worked answer
Only errors that leave one side of a double entry unposted, or post a different amount on one side, affect suspense.
- (i) Complete omission: both debit and credit missing, so no suspense effect.
- (ii) Rent posted as 24,000 instead of 240,000: debit rent is short by 216,000, so credit total exceeds debit total by 216,000; suspense is credited 216,000.
- (iii) Purchase posted to sales: debit purchases is correct and the credit is 180,000 in the wrong account, so total debits and credits still agree; no suspense effect.
- (iv) Electricity posted to water: both are debits of 75,000, so no suspense effect.
- (v) Dishonoured cheque posted to cash book but not to the customer: debit receivables is missing 130,000, so credits exceed debits by 130,000; suspense is credited 130,000.
- (vi) Discount allowed posted to discount received: debit discount allowed is missing 46,000 and credit discount received is extra 46,000, so credits exceed debits by 92,000; suspense is credited 92,000.
Total credited to suspense = 216,000 + 130,000 + 92,000 = 438,000, which clears the debit balance.
2. Prepare the journal entries to correct all six errors and show the suspense account.
Read the worked answer
(i) Dr receivables 96,000; Cr sales 96,000. (ii) Dr rent 216,000; Cr suspense 216,000. (iii) Dr sales 180,000; Cr payables 180,000. (iv) Dr electricity 75,000; Cr water 75,000. (v) Dr receivables 130,000; Cr suspense 130,000. (vi) Dr discount allowed 46,000; Dr discount received 46,000; Cr suspense 92,000.
Suspense account
| Debit | MWK | Credit | MWK |
|---|---|---|---|
| Balance b/d | 438,000 | (ii) Rent | 216,000 |
| (v) Receivables | 130,000 | ||
| (vi) Discounts | 92,000 | ||
| Total | 438,000 | Total | 438,000 |
The account closes after the corrections.
3. Explain why writing the suspense balance to profit or loss would be wrong.
Read the worked answer
Suspense is not an income or expense account. It is a temporary holding account for a trial balance difference that has not yet been explained. Writing it off to profit or loss would overstate or understate profit and would conceal the underlying errors. It could also hide fraud or misappropriation. The correct approach is to investigate and correct each error, as above, so that the ledger balances are reliable. Only after a full investigation, and only if the remaining amount is clearly immaterial, might a write-off be considered, with disclosure. Even then it should not be used as a shortcut to avoid finding the cause.