Suspense vs Clearing Accounts

Suspense Account - Complete Controller

There can be confusion between a suspense account and a clearing account. Both can be less significant and may depend upon their owners’ balance sheet or bookkeeping affairs. Suspense accounts can, in a way, be known as interoffice or clearing accounts.

The primary difference between a suspense account and a clearing account is that a clearing account is zeroed out. Meanwhile, they temporarily hold accounts in the case of a suspense account. Accounting is carried out until identified, and their disposition to a particular proper account is made. 

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Suspense Accounts

Figures or financial items included in a suspense account are transactional. For example, when transactions are carried out and coded incorrectly, they cannot be processed immediately. Other conditions may also include missing an account number on a loan, a deposit transaction, or even a check drawn on a depositor’s account not adequately endorsed or signed.

In the case of a suspense account, they are appropriately inquired, researched, and cleared the following day. The total balances of suspense accounts are cleared as of the reported date, and their balance cannot be reported as ‘other assets’ or ‘other liabilities.’

Their balances can be reviewed, which can include the material amounts. In addition, bank authorities regularly monitor and reconcile suspense accounts. Stale suspense items are charged off when classified as uncollectible and entered as a loss in the report of the concerned authority or examination report. 

Suspense accounts are usually created to handle uncertainties or ambiguities if you do not know where the amount should go. Suspense accounts can also be general ledgers with uncertain or confusing transactions.

An example of a suspense account is when a person has more than one item or multiple outstanding items that sends a payment without defining which item the payment is for. So, rather than leaving these payments off the bookkeeping records, you can put that transaction into a suspense account until you decide where it belongs.

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Clearing Accounts

Clearing accounts are used temporarily to record transactions until they post them to a permanent account. Clearing accounts are simpler accounts where you easily enter cash received as a clearing amount until the money is acknowledged, verified, and deposited in your bank. Clearing accounts can also be used in a way for accounts receivable.

Sometimes, amounts or costs are put into a clearing account, and those respective payments are moved or transferred into a more appropriate account afterward. Clearing accounts are also used to verify endless expenses and income. These amounts are recorded promptly to make the accounting as accurate as possible. 

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Comparing the Two

The suspense and clearing accounts are temporary accounts where added transactions can be transferred to their appropriate accounts, such as the income or expense account. They both have different workings and functionality, as clearing accounts hold transactions for later use or transfer, ensuring that the accounting information is recorded accurately.

Whereas a suspense account is operated or used when there is an accounting problem, for the time being, the accounting problem is resolved later. Both of these accounts are zeroed out at the end.

Clearing accounts can be used for different cleaning purposes and are reviewed to ensure all remaining balances are either zeroed out or explained. The primary purpose of clearing accounts is to ensure that accounts are zeroed out and whether or not the remaining values are valid. Clearing accounts are most valuable for occasions or situations which include:

  • Funds that are not transferred to the bank until the new year
  • Reversal of certain payments needs to be cleared out
  • Incorrect amount posting, which needs to be cleared out
  • All wages need to be banked and cleared to be zeroed out
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