Suspense Account

Subject: Other

Overview

The account opened to rectify the previous year’s one-sided errors is called suspense account. This note has information about suspense account, its preparation, utility and its disposal.

Suspense Account

The account opened to rectify the previous year’s one-sided errors is called suspense account. It is opened for a temporary period only. Suspense account shows no balance after the rectification of all errors and it disappears automatically. The opening of suspense account does not mean that errors detected should be left unrectified.

Preparation of suspense account

A suspense account is opened with a purpose to correct the previous year’s one-sided errors. It is used for the temporary period only. One-sided errors affect only on one side of an account. Therefore, rectification of one-sided errors is done by opening suspense account. Opening suspense account makes possible to prepare journal entries for correcting one-sided errors. Suspense account shows no balance after rectifying one-sided errors and disappears automatically.

Utility of suspense account

A suspense account is opened when one-sided errors detected after preparation of trial balance. It is the account opened for the temporary period till one-sided errors are rectified. A suspense account is debited when the debit total of trial balance remains less. It is credited by the amount short of the credit total of trial balance. The suspense account does not show any balance after the rectification of all one-sided errors. Therefore, the utilities for opening suspense account are as follows:

It helps to carry one-sided errors amounts to the suspense account.
It helps to show the total amount of errors needed to be rectified.
It helps to show the different accounts where rectifications are to be made.
It helps to draft final account along with checking of errors simultaneously.

Disposal of Suspense Account

A suspense account is opened for the temporary purpose of resolving one-sided errors. The account is of no use after all one-sided errors are rectified. Hence, the suspense account is dropped.

Effects of errors on profit or loss

Errors in nominal accounts and store ledger affect either profit or loss of the business. The difference of incomes and expenses is either profit or loss. Symbolically, incomes-expenses = profit or (loss). The accounting equation describes that every error in nominal accounts and store ledger affects either profit or loss. The errors relating to the personal and real accounts neither affect profit nor loss. Therefore, the errors in nominal accounts and store ledger affects ultimately either profit or loss. Thus, errors in nominal accounts affect the accuracy of profit or loss shown by the profit and loss account.

Types of errors and their effect either on profit or on loss

Errors in nominal account	Effect either on profit or on loss
Errors in nominal account	Profit	Loss
Error on debit side	Decreases	Increases
Excess entry on debit side	Decreases	Increases
Less amount entry or less total on debit side	Increases	Decreases
Omission on debit side	Increases	Decreases
Error on credit side	Increases	Decreases
Excess entry on credit side	Increases	Decreases
Less amount entry or less total on credit side	Decreases	Increases
Omission on credit side	Decreases	Increases

Things to remember

The account opened to rectify the previous year’s one-sided errors is called suspense account.
Suspense account is opened when one-sided errors detected after preparation of trial balance.
The difference of incomes and expenses is either profit or loss.

It includes every relationship which established among the people.
There can be more than one community in a society. Community smaller than society.
It is a network of social relationships which cannot see or touched.
common interests and common objectives are not necessary for society.

Videos for Suspense Account

Suspense account

Suspense Account

Questions and Answers

Rectify the following errors which were located after the preparation of trial balance:

Salary paid Rs.500 but wrongly debited to wages account.

Interest received Rs.200 but wrongly recorded in dividend account.

Interest paid to Ramesh Rs.300 and debited to his personal account.

Furniture purchased for Rs.7,000 and recorded in purchases account.

Rectification of Errors

Date	Particulars	LF	Debit Amount	Credit Amount
a)	Salary a/c………………..Dr.		500
	To wages a/c			500
	(Being error rectified.)
b)	Dividend a/c…………….Dr.		200
	To interest received a/c			200
	(Being error rectified.)
c)	Interest a/c………………..Dr.		300
	To Ramesh’s a/c			300
	(Being error rectified.)
d)	Furniture a/c………………..Dr.		7,000
	To purchase a/c			7,000
	(Being error rectified.)

Rectify the following errors which were located after the preparation of trial balance:

Salary paid to Sulav Rs.4,000 and debited to his personal accounts.

Rent paid to land lord Mr.Y Rs.2,000 and debited to his personal account.

Purchase book was overcast by Rs.1,000.

Purchase return book was under cast by Rs.500.

Rectification of Errors

Date	Particulars	LF	Debit Amount	Credit Amount
a)	Salary a/c……………….Dr.		4,000
	To Sulav’s a/c			4,000
	(Being errors rectified.)
b)	Rent a/c……………….Dr.		2,000
	To Mr.Y’s a/c			2,000
	(Being errors rectified.)
c)	Suspense a/c……………….Dr.		1,000
	To purchase a/c			1,000
	(Being errors rectified.)
d)	Suspense a/c……………….Dr.		500
	To purchase return a/c			500
	(Being errors rectified.)

Rectify the following errors which were located after the preparation of trial balance:

Rupesh returned goods worth Rs.3,000 but no entry has been passed in the books.

Goods worth Rs.1,200 purchased for personal use was debited to personal account.

Furniture worth Rs.2,000 purchased for personal use was debited to purchase account.

Salaries of Rs.1,000 paid to Rupesh wrongly debited to his personal account.

Rectification of Errors

Date	Particulars	LF	Debit Amount	Credit Amount
a)	Sales return a/c………………Dr.		3,000
	To Rupesh’s a/c			3,000
	(Being errors rectified.)
b)	Binita’s a/c………………Dr.		1,200
	To purchase a/c			1,200
	(Being errors rectified.)
c)	Drawing a/c………………Dr.		2,000
	To purchase a/c			2,000
	(Being errors rectified.)
d)	Salary a/c………………Dr.		1,000
	To Rupesh’s a/c			1,000
	(Being errors rectified.)

Write out the journal entries to rectify the following errors located after the preparation of trial balance:

Credit sales to Rita Rs.2,000 debited to her account Rs.200.

Advertisement expenses Rs.300 was posted in the ledger as Rs.3,000.

Rs.1,000 cash paid to Hari posted as Rs.100 in Hari’s account.

Sales of Rs.550 to Makalu Ltd. Were recorded in the sales book as Rs.505.

Rectification of Errors

Date	Particulars	LF	Debit Amount	Credit Amount
a)	Rita’s a/c………………Dr.		1,800
	To suspense a/c			1,800
	(Being errors rectified.)
b)	Suspense a/c………………Dr.		2,700
	To advertisement a/c			2,700
	(Being errors rectified.)
c)	Hari’s a/c………………Dr.		900
	To suspense a/c			900
	(Being errors rectified.)
d)	Suspense a/c………………Dr.		45
	To sales a/c			45
	(Being errors rectified.)

Rectify the following errors which were located after the preparation of trial balance:

Credit purchases of Rs.8,000 from Shyam recorded as credit sales.

Credit sales to Rajendra of Rs.2,000 recorded as credit purchases.

Interest received Rs.250 but recorded as interest paid.

Cash received from Mr.X Rs.1,000 as cash paid to Mr.X.

Rectification of Errors

Date	Particulars	LF	Debit Amount	Credit Amount
a)	Purchase a/c……………….Dr.		8,000
	Sales a/c……………….Dr.		8,000
	To Shyam’s a/c			16,000
	(Being errors rectified.)
b)	Rajendra’s a/c……………….Dr.		4,000
	To sales a/c			2,000
	To purchase a/c			2,000
	(Being errors rectified.)
c)	Cash a/c……………….Dr.		500
	To interest a/c			500
	(Being errors rectified.)
d)	Cash a/c……………….Dr.		2,000
	To Mr.X a/c			2,000
	(Being errors rectified.)

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