Clearing V/s Suspense Account
Suspense and clearing accounts resemble each other in many respects but there exists important fundamental difference between the two. Read more to explore these differences.
Suspense and clearing accounts resemble each other in many respects but there exists one important fundamental difference.
Both are temporary accounts. Transactions are entered and finally transferred to the appropriate account.
Suspense and clearing accounts have entirely different functions.
Clearing accounts are used to hold transactions for later posting and ensure information is recorded correctly and completely.
A suspense account is used when there appears to be a problem. It serves to record an amount until the problem is resolved.
Both suspense and clearing accounts are "zeroed out" periodically. This means everything in an account is moved to other accounts, leaving a zero balance.
Suspense A/c is used for tracking Uncertainties – to hold transactions when there is some ambiguity involved.
For example, customer has deposited payment in the bank account and you are unable to identify the customer from available information,
You can put the transaction in a suspense account until you determine where it belongs.
Whereas Clearing Accounts are used for tracking transactions on a temporary basis until it's time to post them to a more permanent account.
Taking the same example, now the customer has sent payment against many outstanding invoices and you know it belongs to a particular customer but not to which invoice.
This may be parked in a clearing account until the confirmation is received from customer and amount applied to correct invoice.
Just to keep track of correct outstanding past due invoices.
Related Links
You May Also Like
-
Complete Bank Reconciliation Process
Bank Reconciliation Process is a eight step process starting from uploading the Bank Statement to finally posting the entries in General Ledger. Learn the Eight Steps in Detail!
-
What is Account Reconciliation?
Before you understand the Bank Reconciliation Process it is important to understand what is account reconciliation and why it is carried out.
-
Many different accounts are used in finance. Understand the representation and nature of clearing account in context of accounting, finance and ERP Systems.
-
Have you ever wondered what is actually a Bank Statement and why it is needed. What is the information that is available in a bank statement?
-
Effectively using cash management with trade finance products brings tangible benefits to both corporates and financial institutions.Learn the various benefits of cash management process.
-
Bank Reconciliation is a PROCESS to Validate the bank balance in the general ledger With Bank Statement. Learn the bank recon process.
-
How the inflow and outflow of cash is linked to the operating cycles of the business? Learn the cash management process in an enterprize and it's key components.
-
The objective of Financial risk management is to protect assets and cash flows from any risk. Treasury function works to accurately assess financial risks by identifying financial exposures including foreign exchange, interest rate, credit, commodity and other enterprise risks. Learn about the various risks that are managed by treasury.
-
What are the various sources of cash in an organization. Which sources increase the cash available with the enterprise and which sources results in outflow of the cash? Let us explore!
-
In the previous article we talked about the meaning of the account reconciliations. Now as you now the definition of account reconciliation, in this article let us see why it is carried out.
