What is Suspense Account?

A suspense account, sometimes called "ask my accountant" or "uncategorized," is where transactions go when the bookkeeper does not yet know how to classify them. It is useful as a short-term holding place and harmful as a permanent one.

Typical contents

• Bank deposits without a clear source
• Payments to unfamiliar vendors
• Transfers that may be owner contributions or loans
• Card charges without receipts

Why a growing balance is a problem

Anything left in suspense at year end has to be classified before the tax return can be prepared. A large suspense balance means profit, expenses and possibly income are unknown. Preparers often have to ask owners about each item months after the fact.

A good routine

1. Post unclear items to suspense with a note
2. Send the owner a short list of questions each month
3. Reclassify items as answers arrive
4. Aim for a zero suspense balance at each month end, and certainly at year end

Deposits are the priority

Unexplained deposits matter most: if they are income and not recorded, revenue is understated; if they are loans or owner contributions recorded as income, profit is overstated. The IRS notes in its recordkeeping guidance that records should identify the source of receipts.

Preventing it

Separate business and personal accounts, capture receipts at the time of purchase and record owner transfers clearly. See separate business and personal finances and clearing accounts. Our catch-up bookkeeping work often starts by clearing old suspense balances.

Related terms

• Clearing Accounts: A clearing account is a temporary account used to hold amounts until they can be matched and moved to their final accounts.

Browse more definitions in the small business glossary.