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When the accountant has failed to record a part of the transaction, it is known as error of partial omission. In this transaction, cash goes out and the loan is settled. Hence, in the journal entry, the Loan account will be debited and the Bank account will be credited. In this example, the receiver is an employee and the giver https://1investing.in/ will be the business. Hence, in the journal entry, the Employee’s Salary account will be debited and the Cash / Bank account will be credited. Similarly, in a different scenario if Ram came to know that the same amount was received from the sale of old furniture, then the suspense account will be regarded as a real account.
What is a suspense account on balance sheet?
As the name suggests, a suspense account is an account that temporarily records amounts that are yet to have their proper accounts determined. In balance sheet terms, a suspense account is not ideal, as it can prevent you from accurately balancing the books.
Accounts of both tangible and intangible nature fall under this category of accounts, i.e. Machinery, Buildings, Goodwill, Patent rights, etc. These accounts appear in the Balance Sheet and the balances get carried forward to the next financial year. When a transaction is incorrectly recorded, it is known as error of commission. It usually occurs due to lack of concentration or carelessness of the accountant.
viii. Posting a correct amount to a wrong account
For example, during the purchase and sale of goods, only two components directly get affected i.e money and stock. But, apart from this we may incur profit or loss out of such transactions and we might incur some expenses for these transactions to happen. These secondary components fall under the Nominal Category and the accounts that are in Profit and Loss statement are shown under this category. Depending on the situation, a suspense account can be any type of account ( i.e personal, real or nominal account). Therefore, from all these examples it can be concluded that the suspense account can be either personal, real or nominal based on the situation.
Now, after a few days it came to the knowledge of Ram that this amount was paid by Shyam, then the suspense account is treated as a personal account. The errors that make up for each other or neutralise each other are known as compensating errors. These errors may occur in related or unrelated accounts. Thus, excess debit or credit in one account may be compensated by excess credit or debit in some other account.
Example
It means the failure to record a transaction in the journal or subsidiary book or failure to post both the aspects in ledger. The failure of the accountant to record a transaction or an item in the books of accounts is known as an error of omission. The ledger accounts which contain transactions related to the assets or liabilities of the business are called Real accounts.
Similarly if you come to know that this amount was received against sale of old computer, suspense account is a real account. In case it was received on account of services you have rendered, it is an income account i.e. a nominal account. Ledger accounts that contain transactions related to individuals or other organizations with whom your business has direct transactions are known as personal accounts. Some examples of personal accounts are customers, vendors, salary accounts of employees, drawings and capital accounts of owners, etc. Transactions related to income, expense, profit and loss are recorded under this category. These components actually do not exist in any physical form but they actually exist.
(i) Error of complete omission
A suspense A/c could be a Personal, Real or Nominal A/c depending on the situation. Let us take an example you have received Rs.5000 but are not aware from whom and on what account this amount suspense account can be classified into has been received, you can place this amount at the credit of suspense a/c. Later if you come to know that it was received from Ramesh, then suspense account is a personal account.
What is suspense account in account?
A suspense account is an account of the general ledger that is used for the temporary recording of business transactions. The need for a suspense account arises due to the inability to identify the appropriate ledger account for the recorded transaction.
Ram had received an amount of Rs.2500 but was unable to determine from whom and on what basis it was received. Therefore, this amount will be credited to the suspense account. Needs to review the security of your connection before proceeding. Give one example with entries of suspense Account. Let us understand this with the help of an example.
