What is a "Suspense account" and where is it used and how does it differ from a "Contra Accounts"?

Suspense Account is a temporary account that is opened to identify and rectify a difference in a trial balance.

 

A suspense account is an account  to record transactions, the exact amount of which is not known at the time of recording the transaction and pending finalization subject to receiving the required details.

It is also used to represent the difference in trial balance, in the event the trial balance is not tallying due to differences, finally set off with the identification of the reasons for such differences and not allowed to be permanently to become part of the accounting system. 

 

A suspense account is normally located in the Profit & Loss account. Any amount that is posted to the suspense account should be there on a temporary basis only as this amount needs to be investigated and posted to the correct code. If you have taken over the accounting for a company and they have a suspense account it is very important to make sure these amounts are explained and identified and finally removed and coded to the correct account. If you are unsure about where to code a transaction to then it can be coded to the suspense account until your bookkeeper or accountant can be reached for advice.

 

Contra accounts: Contra accounts are usually found application in banks to represent transactions of dual nature, forming both  as a liability and at the same time an asset, to set off mutually in the event of the completion of the transaction when all the procedures are complete.  For example, if a cheque is deposited in the bank for collection basis,m when the transaction is recorded in the books of the bank, the collection item is an asset to be received from the drawing bank of the instrument; at the same time if it is collected it is to be credited in to Customers account in the event of realization. Similarly the case with bills for collection, or any type of instruments for collection.

A transaction between banker and the company is also a contra type transaction. Similarly, to record transactions of Sales return, the type of transaction is also a contra transaction Debiting sales and crediting sales returns. (similar transactions are contra transactions)

 

Difference between Suspense Account and Contra account: Suspense account will have only one balance, either credit or debit.  But a contra account have two balances for same type/class: and is permanent in nature till all the items are based to zero. A credit balance and also a debit balance both to be separately shown.

Suspense Account is a temporary account that is opened to identify and rectify a difference in a trial balance.

Contra accounts are usually found application in banks to represent transactions of dual nature, forming both  as a liability and at the same time an asset, to set off mutually in the event of the completion of the transaction when all the procedures are complete.

   

A suspense account is an account in the general ledger in which amounts are temporarily recorded. The suspense account is used because the proper account could not be determined at the time that the transaction was recorded. A contra account is a general ledger account which is intended to have its balance be the opposite of the normal balance for that account classification. For instance, a contra asset account is intended to have a credit balance instead of the debit balance normally found in an asset account. A contra revenue account is intended to have a debit balance instead of the credit balance normally found in a revenue account. The use of a contra account allows a company to continue to report the original amount (or the gross amount) and to also report the carrying amount (or net amount) To illustrate, let's use the contra asset account Allowance for Doubtful Accounts, which is associated with the asset account Accounts Receivable. If the balance in the Allowance account is a credit of $2,000 and the Accounts Receivable account has a normal debit balance of $40,000, the net realizable value of the receivables is $38,000. The use of this contra account allows1) the original amount of uncollected sales invoices to continue to be reported in Accounts Receivable, and2) the net amount of $38,000 to be reported on the balance sheet as the amount that will be turning to cash.

Suspense account has only one balance whether its in the credit side or in the debit side while contra accounts having two balances, and is shown separately.

suspense account is used to rectify entries and also to balance the trial balance