The primary purpose of a suspense account would be to ensure that all transactions are recorded, regardless of whether there is uncertainty surrounding the specific transactions. By doing so, delays and errors are minimized, and records are always up-to-date. A suspense account is a general ledger account in which amounts are temporarily recorded. The suspense account is used because the appropriate general ledger account could not be determined at the time that the transaction was recorded. If your money is put into a suspense account, it isn’t serving your needs or going to pay off your mortgage.
What is a Suspense Account
Another instance in which having a suspense account comes in handy is when a trial balance is out of balance, meaning the debit and credit columns do not match. When you purchase a home and use a mortgage loan to finance that purchase, you will likely encounter several unfamiliar terms. It does not mean you must remain in suspense regarding what happens to your payment. Instead, the term “suspense” refers to amounts your lender holds in escrow.
What is the difference between adjusting entries and suspense accounts?
As long as the lender gets their full payment by the official due date, they are usually pretty easy to work with regarding making partial payments. A mortgage servicer may create a suspense account for a borrower who makes partial mortgage payments. In that case, the mortgage servicer would put the first half of the payment in a suspense account until the borrower completes the payment with their second installment later that month. The role of suspense accounts in maintaining accurate financial records and facilitating smooth audits cannot be overstated. As https://www.instagram.com/bookstime_inc highlighted by the various statistics and examples, they are indispensable tools for accountants and auditors alike.
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Or if you are paying more than you need to, you may be losing money that you could hold onto or use to pay down your principal faster. A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation. Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications. Deposits or withdrawals are made for transactions that are yet to be completed.
The suspense account in accounting is a general ledger account used to make temporary unclassified transaction postings until the correct classification can be determined using transaction analysis. A general ledger is often the part of your financial records where your assets and liabilities are recorded on an ongoing basis. Suspense accounts are often used for assets or liabilities and may require further clarification to be adjusted or added where they belong. In this example, https://www.bookstime.com/ let’s say that the borrower’s payment was increased to $975 per month. The payment is increased to recoup the extra money the mortgage company paid for real estate taxes and to collect enough money for taxes the following year.
- If your loan is escrowed for taxes and insurance, part of the payment goes into an escrow account.
- Instead, they may just label your account as delinquent and count the payment as late when you pay the remaining monthly balance.
- When debits and credits do not match, keep the difference in a suspense account until the problem is resolved.
- In this blog, we will demystify what suspense accounts are, explore different types, and dive into examples that bring these concepts to life.
In that case, the lender may put the $450 in a suspense account until you pay the remaining $50. You would then have until the mortgage payment’s due date to pay the remaining $50 to avoid any late fees or penalties. There are also suspense accounts used for brokerage and investing purposes.
Businesses may decide to clear their suspense accounts quarterly, while smaller companies may do so more often. Generally, at the time of recording, a suspense account might not denote anything that is immediately good or bad in nature. However, holding a balance in the suspense account for a longer period of time without resolving it might not reflect well on the business. Thus, transactions in the suspense account should be cleared on a regular basis, and the root cause should suspense balance meaning be identified early on. A mortgage suspense account is a catch-all account that would often be used to temporarily hold funds in case a customer overpays or underpays their monthly installments.
- It serves as a safeguard that keeps funds in a known location until all the details can be sorted out and the payments can be accurately applied to the mortgage as intended.
- There are several errors that may be revealed by the trial balance which involve the suspense account.
- Your lender may eventually reduce your monthly escrow amount and apply these funds to your escrow funds.
- As highlighted by the various statistics and examples, they are indispensable tools for accountants and auditors alike.
- Identifying an amount shouldn’t be an impossible task (if so, it may suggest fraud).
- A general ledger is where a business records its assets and liabilities on an ongoing basis, broken into separate categories or accounts.
Closing the suspense account
A suspense account may also be established if further information is needed to finalize the transaction or if there are other complications that need to be resolved. In mortgage servicing, the servicer can use a suspense account to park funds temporarily if a borrower has made only a partial payment for that month. In investing, a suspense account is a type of brokerage account where a customer’s proceeds from selling an investment may be recorded until the customer uses the money to invest in something else. A trial balance is the closing balance of an account at the end of an accounting period.