When the trial balance does not tally due to the one-sided errors in the books, an accountant puts the difference between the debit and credit side of the trial balance on the shorter side as a suspense Account. As and when an error is located it has to be rectified. After rectification, the balance in the suspense account reduces and consequently becomes zero. Thus we cannot categorize the Suspense Account as it is a temporary account and can have debit or credit balance depending upon the situation.
In summary, a suspense account is a temporary account used to rectify errors in a trial balance, and rectification is the process of correcting those errors in a trial balance.
Trial Balance errors can be one-sided, meaning they only affect one side of the trial balance, or they can affect the trial balance totals. For rectifying one-sided errors you have to identify the account with the error. A suspense account can be created to ascertain the amount of difference in the trial balance and rectify the errors.
The rectification process essentially involves:
- Cancelling the effect of wrong debit or credit by reversing it; and
- Restoring the effect of correct debit or credit.
For this purpose, we need to analyse the error in terms of its effect on the accounts involved which may be:
(i) Short debit or credit in an account; and/or (ii) Excess debit or credit in an account.
Therefore, rectification entry can be done by:
(i) Debiting the account with short debit or with excess credit,
(ii) Crediting the account with excess debit or with short credit.
Here are some things to know about suspense accounts and rectification:
A suspense account is created after preparing a trial balance and rectification is done before closing ledger accounts.
If all errors are rectified, the suspense account will be automatically closed and become zero.
If there’s still a difference after all errors are rectified, the remaining balance should be transferred to the balance sheet. The mistake may be rectified after the preparation of the final accounts. In such a case Suspense Account is carried forward to the next accounting year. The suspense account balance can be a debit or credit balance, depending on the situation. If the suspense account has a debit balance, it will be recorded on the assets side of the balance sheet. If it has a credit balance, it will be recorded on the liabilities side.
