A suspense account is a temporary account in the nominal ledger that is used in two main situations. The first is where a trial balance does not balance: a suspense account is opened, which will be investigated and cleared later. The second is when a transaction needs to be recorded, but its exact details are not known--e.g. a receipt has appeared in the bank account but the source of that money is unclear. The entry would be Dr Bank, Cr Suspense until the source of the receipt can be found and the suspense account cleared.
For the purposes of the CO2 exam, a suspense account balance will be provided, probably based on the first type of situation I have described, together with a number of errors that have been uncovered. Your task will be to resolve these and clear the suspense account. Although the use of computerised accounting systems has rendered any failure of atrial balance to balance unlikely--or even impossible, according to some--such scenarios are still extremely examinable. Questions involving suspense accounts are a good test of your double-entry skills, requiring you to establish what has happened and decide how to correct it.
Let's work through a typical example involving suspense accounts to show how to tackle such questions in the exam.
A trial balance has an excess of debits over credits of $8,800. A suspense account has been opened to make it balance. It's later discovered that:
The discount allowed balance of $6,000 and the discount received balance of $14,000 had both been entered on the wrong side of the trial balance.
An item of $500 had been omitted from the sales records--i.e. the sales day book.
The purchase ledger control account balance of $467,572 had been included in the trial balance as $474,772.
The first step is to open a suspense account. As there are more debits than credits, you will need to start with a credit balance of $8,800 to balance the account:
Suspense account Dr Cr TB difference 8,800 Let's consider each piece of information in turn. Note 1 states that the discount allowed balance of $6,000 and the discount received balance of $14,000 were both entered on the wrong side of the trial balance, so first we need to establish what should have been recorded:
Discount allowed is a debit entry:
Dr Discount allowed: $6,000.
Cr (unknown account): Discount received is a credit entry:
Dr (unknown account): Cr Discount received: $14,000.
For discount allowed you must move the entry from the credit side to the debit side. To do this, the account will need to be debited twice: once to cancel the credit entry and a second time to create the correct debit...