A suspense account is a section of a general ledger where an organization records ambiguous entries that still need further analysis to determine their proper classification and/or correct destination. In the context of investing, a suspense account is a brokerage account where an investor temporarily parks his cash until he can deploy that money towards the purchase of new investments.
- A suspense account is a catch-all section of a general ledger used by companies to record ambiguous entries that require clarification.
- Suspense accounts are routinely cleared out once the nature of the suspended amounts are resolved, and are subsequently shuffled to their correctly designated accounts.
- Suspense accounts are frequently used by mortgage lenders when a borrower accidentally falls short on a monthly payment, or if a borrower chooses to break up the monthly payment obligation into partial amounts.
- In investing, suspense accounts hold an investor's money until it can be reinvested.
Understanding Suspense Accounts
Suspense accounts contain entries where there are uncertainties or discrepancies. For example, if an individual makes a deposit but accidentally writes down an account number incorrectly, that money will be housed in a suspense account until the error is corrected. In another scenario, a customer may issue a payment, but fail to specify which invoice he intends to pay off with those funds.
Regardless of the uncertainties in question, suspense accounts are cleared out once the confusion is resolved, at which time the funds are promptly re-shuffled to their correctly designated accounts. At this time, the suspect account should theoretically achieve a balance of zero dollars. While there is no definitive timetable for conducting a clearing-out process, many businesses attempt to regularly accomplish this on a monthly or quarterly basis.
Mortgage Suspense Accounts
A mortgage servicer may use suspense accounts to hold funds when a borrower falls short on a required monthly loan repayment, where the suspense account functions as a catch-all vessel that secures the funds. At this time, the mortgage servicer may elect to distribute the partial amount received to various silos, including principal amount owed, accrued interest, property tax payments, and homeowner's insurance programs.
In some cases, a borrower deliberately makes partial payments, by intentionally dividing his monthly payment into two chunks. In such cases, mortgage servicers can use suspense accounts to house the first partial payment until the second payment is remitted. After receiving sufficient funds to make a full payment, the mortgage servicer then applies the combined balance to the correct account.
Brokerage Suspense Accounts
Similar to business 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 $500, but plans to quickly invest that amount of money in a different set of investments, the $500 from the sale would be moved to a suspense account until it can be allocated toward the new purchase.
The amount of funds held in suspense account is referred to as the "suspense balance."