Meaning of Suspense Account
If the difference in the trial balance is not
quickly located, it is usual to put the difference to suspense account in order
to make the trial balance balanced.
· If the debit side is short, the suspense
account will be debited saying “To differences in trial balance” and
Similarly, the suspense account will be credited if the credit side is
The difference in trial balance is due to type of mistakes which affect only
one account, such as wrong posting of an account, mistake in totalling a subsidiary
book etc. Such types of mistakes are only reflected in suspense account.
When the difference in trial balance is put to suspense account the account to
be corrected will be debited or credited as the case may be and the journal
entry will be completed by crediting or debiting the suspense account. When all
the mistakes have been corrected, the suspense account will show no balance.
CORRECTION IN THE NEXT TRADING PERIOD:-Since
it is necessary to ascertain the profit or loss of each period separately, it
would be necessary to rectify errors in such a way as not to affect the current
year's expenses, losses or incomes. To take an example, if an error committed
in 2001-2002 is rectified in 2002-2003 by debiting purchase account, it would
mean that it would be treated as expenditure for 2002-2003. This would be wrong
and (proper way is to leave the purchase account and all other nominal account
for 2002-2003 unaffected by cm n 2001-2002.
For this purpose, a separate account, profit and loss adjustment account,
should be opened and all debit and credit in respect of nominal accounts for
errors committed in previous trading period should be passed through that
account. The balance of this account is finally transferred to the capital
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