A suspense account is the section of a company's books where it records its unclassified debits and credits. The suspense account temporarily holds these unclassified transactions while the company decides their classification. Transactions in the suspense account continue to appear in the general ledger for the company.
In investing, a suspense account is a brokerage account where an investor places cash or short-term securities temporarily while deciding where to invest them for a longer term.
Breaking Down Suspense Account
Most suspense accounts are cleared out regularly based on the internal accounting practices of the business. To be considered cleared, the account must reach a zero balance; any suspended amounts must be appropriately allocated to their designated accounts. While there is no standard amount of time to complete the clearing-out process, many businesses complete it cyclically, such as monthly or quarterly.
Suspense Accounts in Business Accounting
In the context of business accounting, a suspense account is a temporary holding place for transactions that have not been vetted as to which account or function the charges should be associated. Often, this is an actual bank account, with its account number, keeping the funds separate from those that have already been categorized. This allows the transactions to be recorded to funds properly without requiring the transactions to be fully allocated. This account can also hold information on discrepancies while more information is gathered.
Mortgage Suspense Accounts
A mortgage servicer uses suspense accounts to hold funds when a borrower's payment is less than or more than the standard required payment. This allows the funds to be temporarily, yet securely held while the servicer determines which portions of the payment to apply to items such as the principal, accrued interest, and escrow accounts.
Certain regulations control how mortgage servicers may use suspense accounts. If the borrower provides the full required payment or more, the funds must be allocated to the borrower's account promptly upon receipt. Any payment amount below the full requirement, referred to as a partial payment, can be held in a suspense account until the full payment amount is received.
Brokerage Suspense Accounts
Similar to business suspense accounts, brokerage suspense accounts hold funds temporarily as transactions are completed. For example, if an investor is selling certain securities in the amount of $500 and then buying different securities in the same amount, the $500 from the sale would move to a suspense account until it can be allocated to the new purchase.