A Suspense Account That Has Not Moved in Six Weeks
At 31 December the branch suspense account shows a debit balance of PKR 4,820,000, and the branch has reported profit before suspense adjustments of PKR 26,500,000. The items are: (i) a PKR 1,200,000 ATM switch settlement difference first noted on 14 November; (ii) PKR 850,000 received by telegraphic transfer and credited to customer A instead of customer B on 3 December, of which A has since withdrawn PKR 300,000; (iii) a PKR 2,400,000 difference on the inter-branch account, with the matching contra entries dated 2 January in the other branch's books; (iv) a standing-instruction reversal of PKR 370,000 posted twice to the same customer account. Bank policy requires provision against suspense items older than 90 days, and audit requires any item older than 60 days to be reported to the CFO. The external auditor has asked why a six-week-old unexplained balance has not moved.
1. Classify each of the four items, state the accounting treatment and journal entries, and compute the adjusted profit in the worst realistic case.
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(i) PKR 1,200,000 ATM switch difference, 47 days old. Cause unknown, most likely a switch or other-bank settlement mismatch. At 31 December it is under 60 days, so no CFO report and no provision, but it must be chased with the switch log and the counterparty's settlement file. If it is still open at 90 days, policy forces the full PKR 1,200,000 charge.
(ii) PKR 850,000 credited to the wrong customer. A pure error. Reverse: Dr Customer A PKR 850,000, Cr Customer B PKR 850,000. Because A has withdrawn PKR 300,000, A's account goes overdrawn by that amount; the PKR 300,000 is a receivable from A, not a suspense item. Provide if A does not repay.
(iii) PKR 2,400,000 inter-branch difference. A timing difference - the contra entries are dated 2 January, after year-end. No profit effect; verify the two entries and clear on receipt.
(iv) PKR 370,000 reversal posted twice. An error that over-credited a customer by PKR 370,000. Debit the customer's account if funds are available; otherwise treat as a receivable and provide if doubtful.
Adjusted profit. Worst realistic case, if the PKR 300,000 and PKR 370,000 are not recoverable: PKR 26,500,000 - 300,000 - 370,000 = PKR 25,830,000. The other PKR 3,600,000 is either timing or under investigation and is not a charge at 31 December - but it is also not profit the branch can bank on until cleared.
2. Explain the double entry that caused the PKR 370,000 suspense balance, give the correcting entries, and identify the control weaknesses.
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What went wrong. The intended entry was Dr Standing Instruction Suspense, Cr Customer Account PKR 370,000. The clerk posted it twice, so the customer was credited PKR 740,000 instead of PKR 370,000. The extra PKR 370,000 has no counter-entry - which is precisely why the suspense account carries it.
Correcting entry if the customer's balance still covers it: Dr Customer Account PKR 370,000 / Cr Suspense Account PKR 370,000.
If the customer has withdrawn the money: Dr Receivable from Customer PKR 370,000 / Cr Suspense PKR 370,000, then pursue recovery and provide if doubtful. A customer who received a bank error in good faith is not automatically liable to have the account debited into overdraft without being told, so the relationship team must make contact before the debit.
Control weaknesses:
- The same person initiated and posted the reversal; no maker-checker on standing instructions.
- No reconciliation of postings against the instruction file - a duplicate posting should appear on a same-reference exception report.
- Suspense was used as a balancing plug. Each suspense debit should carry an owner, a reason code and an expected clearing date at the moment of posting.
The general lesson for the auditor: suspense is a clearing account, not income. A debit balance means the bank is owed something or has paid something it cannot attribute - the opposite of profit. Any balance sitting still for six weeks is evidence the process, not just the entry, has failed.
3. Advise on how the 60-day and 90-day policy should be applied here, and what to give the auditor.
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The 60/90-day rule is a floor, not a target. The right sequence:
- Day 0. Every suspense entry carries an owner, a reason code and an expected clearing date.
- Day 30. Branch review; if not cleared, escalate to the reconciliation unit with the investigation log.
- Days 47-60. The ATM item and any other open item go to the CFO with the correspondence, the counterparty's file and a recovery assessment. The audit requirement is about ageing disclosure - the auditor's real question is why a six-week-old unexplained balance has not moved.
- Day 90. Automatic provision per policy; any release needs evidence, not optimism.
For the auditor, hand over: the ageing table, the 60-day CFO report, the file for each item, and a remediation plan with dates and owners. Answering 'it will clear next week' without a document is what turns a reconciliation query into a control finding.
Do not let the policy become a delay mechanism. If A's PKR 300,000 or the PKR 370,000 proves irrecoverable before day 60, book the charge in the current period rather than waiting for the 90-day trigger. The policy sets a maximum patience, not a minimum.