Suspense account question - URGENT HELP NEEDED

mr10

I'd really appreciate someone walking me through this question because I've been struggling for half an hour here. Thanks.

rileyb

Best way to deal with Suspense question is to model the scenario in some way.

The question says we made a payment for purchases for £299, so the correct entries in our cash book should have been Purchases £299 Total £299 VAT £0

The correct double entry for this should have been

Debit: Purchases £299
Credit: Bank £299

As we have undercast the credit side of the Cash Book (i.e put too little in), it creates an imbalance, so it creates a suspense account balance of £270, the £299 we put in our purchases column - the £29 we incorrectly put in our total column. This is a CREDIT amount created in order to balance this account. This is useful for later.

So what we actually posted in our general ledger is

Debit Purchases: £29
Credit Bank: £29

The purchases column is a memorandum column which provides useful information but doesn't affect the double entry directly, unless this was a credit sale (which it isn't here.)

So to fix this, we need to do three things.

1. Remove the incorrect transaction

Debit: Bank £29
Credit: Purchases £29

2. Post the full transaction correctly

Debit: Purchases £299
Credit: Bank £299

Remove the suspense account balance. This is only one posting

Debit: Suspense £270

The reason being is there is no dual effect. The suspense balance was created because we made a mistake, and creates a temporary balance in order to make things equal in our account. However, because we have now corrected our mistake, we no longer need our Suspense balance, so to get rid of it, we post an amount on the opposite side , which is equal to our Suspense balance to get it to equal to 0

Think of a suspense account as a Lego brick which doesn't quite fit, but you use, until you can find the original brick.

Hope that helps.

mr10

> @rileyb said:
> Best way to deal with Suspense question is to model the scenario in some way.
>
> The question says we made a payment for purchases for £299, so the correct entries in our cash book should have been Purchases £299 Total £299 VAT £0
>
> The correct double entry for this should have been
>
> Debit: Purchases £299
> Credit: Bank £299
>
> As we have undercast the credit side of the Cash Book (i.e put too little in), it creates an imbalance, so it creates a suspense account balance of £270, the £299 we put in our purchases column - the £29 we incorrectly put in our total column. This is a CREDIT amount created in order to balance this account. This is useful for later.
>
> So what we actually posted in our general ledger is
>
> Debit Purchases: £29
> Credit Bank: £29
>
> The purchases column is a memorandum column which provides useful information but doesn't affect the double entry directly, unless this was a credit sale (which it isn't here.)
>
> So to fix this, we need to do three things.
>
> 1. Remove the incorrect transaction
>
> Debit: Bank £29
> Credit: Purchases £29
>
> 2. Post the full transaction correctly
>
> Debit: Purchases £299
> Credit: Bank £299
>
> Remove the suspense account balance. This is only one posting
>
> Debit: Suspense £270
>
> The reason being is there is no dual effect. The suspense balance was created because we made a mistake, and creates a temporary balance in order to make things equal in our account. However, because we have now corrected our mistake, we no longer need our Suspense balance, so to get rid of it, we post an amount on the opposite side , which is equal to our Suspense balance to get it to equal to 0
>
> Think of a suspense account as a Lego brick which doesn't quite fit, but you use, until you can find the original brick.
>
> Hope that helps.

This was a massive help, thanks so much.

Pian32

@mr10

1. The effective entry made was:

Debit - Purchases - £299
Credit - Bank - £29
Credit - Suspense £270

2. To undo the entry

Debit - Bank - £29
Debit - Suspense - £270
Credit - Purchases - £299

3. Put in the correct entry

Debit - Purchases - £299
Credit - Bank - £299

The nature of the double entry method means there is ALWAYS a second entry; for the answer above this is what happens.

If we only remove the £29 from the purchases then you'd end up with:

£299 (original) - £29 (correction) + £299 (correct amount) = £569 which is £270 too large still. Meaning the missing entry to pair with the suspense is

Credit- Purchases £270

rileyb

Just to say the Purchases column isn't a memorandum column, but an analysis column. It basically breaks down the transaction that was posted to the Bank or Cash Account and would be part of the double entry. Credit transactions would be in the Day Books. Sorry for the earlier error.

PeterC

@mr10 looks good. If you would like some more general guidance, try https://drive.google.com/file/d/1sSuBFryxnhktkH1iU1LgvP1f3JqZR0sT/view?usp=sharing

roy ramphul

Because the Bank Account is incorrect you could do it this way
1 Reverse the incorrect entry amount for Bank
Debit Bank 29
Credit Suspense 29

2 Entering the correct amount for the Bank Account
Debit Suspense 299
Credit Bank 299

Effect Debit Suspense 270
Credit Bank 270

Pian32

I agree with what roy has said above however in an exam I suspect you'd lose marks for doing it that way.

BBarrett

Pian32 said:

@mr10

Can you sit my exams please lols .good explanation of suspense accounts




1. The effective entry made was:

Debit - Purchases - £299
Credit - Bank - £29
Credit - Suspense £270

2. To undo the entry

Debit - Bank - £29
Debit - Suspense - £270
Credit - Purchases - £299

3. Put in the correct entry

Debit - Purchases - £299
Credit - Bank - £299

The nature of the double entry method means there is ALWAYS a second entry; for the answer above this is what happens.

If we only remove the £29 from the purchases then you'd end up with:

£299 (original) - £29 (correction) + £299 (correct amount) = £569 which is £270 too large still. Meaning the missing entry to pair with the suspense is

Credit- Purchases £270

Pian32

@BBarrett

I've got enough exams of my own to do . Thank you for the compliment I'm always happy to try and help when I'm on the forums so any questions feel free to ask.