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CMA Foundation · Fundamentals of Financial and Cost Accounting · Trial Balance

A Trial Balance did not agree and the difference was transferred to a Suspense Account. Which of the following is the correct statement about the Suspense Account?

The Suspense Account is a temporary account created to hold the difference in the Trial Balance, and it should be cleared when the errors are traced and rectified. It is not an expense, nor a Trading Account item, nor a permanent account.

  1. AIt is a permanent account of an expense nature shown in the Profit and Loss Account
  2. BIt is a temporary account that should be cleared once errors are locatedCorrect
  3. CIt is shown in the Trading Account as a gross profit adjustment
  4. DIt is permanently retained to absorb future errors

Explanation

A Suspense Account is opened only to hold the Trial Balance difference temporarily. When the errors are found and rectified, it is closed. If any remains unresolved at year end, it is shown in the Balance Sheet, not as income or expense.

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