Suspense Account

The term "suspense account" can have several different meanings, depending on the context. In the business world generally, a suspense account is a section of a company's financial books where it can record ambiguous entries that need further analysis to determine their proper classification. 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.

Key Takeaways

  • A suspense account is a bookkeeping tool that can be used for different purposes in different business contexts.
  • A company can use a suspense account to record ambiguous entries on its books that require clarification before they can be assigned to their proper accounts.
  • Mortgage servicers can use a suspense account when a borrower falls short on a monthly payment or breaks up their monthly payment into partial amounts.
  • In investing, suspense accounts are used by brokerage firms to hold clients' money until it can be reinvested.
  • In all cases, suspense accounts are intended to be temporary.

Suspense Accounts in Business

Suspense accounts in a company's general ledger typically contain entries where there are uncertainties or discrepancies that need to be resolved. For example, if a customer of a business makes a payment but writes down their account number incorrectly, that money may be parked in a suspense account until the error is corrected and the payment can be properly credited. In another scenario, a customer might make a payment but fail to specify which of several outstanding invoices they intended to pay off with those funds.

Regardless of the issues in question, suspense accounts are cleared out once the problem is addressed, at which time the funds are promptly re-shuffled to their correctly designated accounts. At that point, the suspense account should achieve a balance of zero dollars. While there is no definitive timetable for conducting a clearing-out process, many businesses try to regularly accomplish this on a monthly or quarterly basis.

Despite its mysterious connotations, "suspense" in this case simply refers to the fact that a transaction or its designation in a company's books has been suspended temporarily, pending some further action.

Mortgage Suspense Accounts

A mortgage servicer can use a suspense account to hold funds when a borrower falls short on their required monthly loan repayment, possibly by accident.

In some cases, a borrower may deliberately make partial payments, dividing their monthly payment into, for example, two chunks. In such cases, mortgage servicers can use a suspense account to hold the first partial payment until they receive the second payment.

After receiving enough money to constitute a full payment, the mortgage servicer will then pay the lender its interest and principal for that month, as well as disburse the appropriate amount to any escrow account that has been set up to cover property tax or homeowners insurance payments.

Similarly, if a borrower pays more than they owe for a particular month—without designating how those funds should be applied—the servicer may put the extra money into a suspense account for the time being.

The rules that mortgage servicers must follow are spelled out by the Consumer Financial Protection Bureau, which enforces the federal Real Estate Settlement Procedures Act. For example, the periodic account statements that servicers are responsible for providing to borrowers must indicate any payments that have been put into a suspense account and the total amount of money in that account. The servicer must also explain what the borrower needs to do in order to have that money applied to their mortgage payment.

Brokerage Suspense Accounts

Similar to the other types of suspense accounts, brokerage suspense accounts temporarily hold funds while transactions are completed. For example, if an investor sells off a group of securities valued at $1,000 but plans to quickly invest that money in a different set of securities, the $1,000 from the sale would be moved to a suspense account until it can be allocated toward the new purchase. 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.

The amount of money held in suspense account is referred to as the "suspense balance."

What Is a General Ledger?

A general ledger is where a business records its assets and liabilities on an ongoing basis, broken into separate categories or accounts. Suspense accounts are used for assets or liabilities that require further clarification before they can be assigned a permanent place in the ledger.

What Is the Difference Between a Suspense Account and a Clearing Account?

Both suspense accounts and clearing accounts are used to temporarily record transactions, until they can be permanently assigned. Suspense accounts, however, are more typically used when there is some question about the transaction that needs to be resolved.

Do Mortgage Suspense Accounts Earn Interest?

No, unlike mortgage escrow accounts, the money in a mortgage suspense account doesn't earn any interest for the borrower.

The Bottom Line

A suspense account is essentially a bookkeeping technique for keeping track of funds for a brief period until particular issues are resolved. A business can use a suspense account to record payments it has received but that can't be properly accounted for until certain missing information (such as an invoice number) is obtained. In mortgage servicing it is a way for the servicer to record incomplete monthly payments until the borrower has made the payment in full. Brokerage firms also use suspense accounts to, for example, keep track of a customer's money between the time they sell an investment and when they reinvest that money.

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  1. National Consumer Law Center. "2.4.2 Use of Suspense Accounts."

  2. Consumer Financial Protection Bureau. "2013 Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules," Pages 23-24.

  3. FINRA. "4523. Assignment of Responsibility for General Ledger Accounts and Identification of Suspense Accounts."