lunedì 14 novembre 2011

Forensic Accounting and Fraud Investigation: A Beginner's Guide

Miscellaneous Suspense: The Handy-Dandy GL Account

One of the great things about the discipline of accounting is that there is always a tidy solution to an accounting problem. Well, most of the time. The reason for this is because you are done only when the books are “in balance”. You can never just throw up your hands, walk away, and leave everything hanging. Each transaction must be dealt with individually and “put to bed” so to speak. But what happens when you don’t have all the information you need to complete a transaction? You may need to finish the bookkeeping by a deadline and you can’t let one piece of information stop you in your tracks.

This is where your “handy-dandy” General Ledger (GL) account called Miscellaneous Suspense is called into action. No, I didn’t type that wrong. It is not Miscellaneous Expense. The word is “suspense” like “suspended animation”. Miscellaneous Suspense is a holding account where temporary transactions are held until further information is available that will tell you where to record the transactions permanently.

To begin, we need to establish where Miscellaneous Suspense should be located on the Chart of Accounts. The Chart of Accounts is a list of all the GL accounts organized by the five sections: Assets; Liabilities; Equity; Revenue; and Expense. There is no set rule where Miscellaneous Suspense has to be located. However, it definitely does not belong in the Revenue or Expense sections. I think the easiest place to locate it is in the Asset section, under Other Assets.

Here are some examples of how to use the account:

1) Let’s assume that you are cruising along entering checks you have written into the Cash Disbursements Journal in your computer accounting software program. All of a sudden you come to a check for $86.28 that has no GL account number on it and it is written to someone that you have never heard of. The boss is out of town, or, if you are the boss, you can’t remember what that check was written for. You can simply code the check to the Miscellaneous Suspense account until you have time to figure it out. Since all checks written result in a decrease to Cash, which is recorded on the credit (right) side of the ledger, the entry of $86.28 will be recorded on the debit (left) side of the ledger.

Miscellaneous Suspense              Cash-in-Bank   
86.28    |                               | 86.28

A few days later, you discover that the check was written to a new person who comes in every two weeks to water the office plants. Using the General Journal, you write a journal entry to reclassify the Miscellaneous Suspense entry to Outside Services:

Outside Services86.28
Misc. Suspense86.29
To reclassify

Miscellaneous Suspense
Outside Services
86.28     |      86.28           86.28   |

2) Sometimes when you buy machinery or equipment you buy it in stages. You may first put a down payment on the item, and then pay for installation charges when the equipment arrives. You might even buy some accessories that have to be attached to the main equipment. Sometimes you may not know whether certain attachments will fit until you try them. Instead of recording all these different payments to the Machinery & Equipment fixed assets account, you can use the Miscellaneous Suspense account to accumulate all the costs until you have a final figure. This way, when you look into the fixed asset account you can identify this one piece of equipment as costing one single amount. For example:

You bought a milling machine that costs $7,800. The down payment was $ 2,000; installation fees $500; accessories $234; $76; $123; and $42. You returned the $123 item and replaced it with a $161 item. These costs came in over a two-month period, and when the equipment was finalized you set up a Note Payable over three years for the remaining amount. The Miscellaneous Suspense account would look like this:

Miscellaneous Suspense
2,000 |
161 123
3,136 123

Using the General Journal, you would then transfer this total amount of $3,013 from Miscellaneous Suspense plus the amount of the Note Payable to the fixed asset GL account called Machinery & Equipment because that is the full cost of the milling machine.

Mach & Equip8,813
Notes Payable5,800
Misc. Suspense3,013

You are probably starting to get the idea now. If you have made a mistake and need to close the books, put the difference in Miscellaneous Suspense until you have time to make the correction. If you find a check has cleared the bank but it’s not on your register and you have no idea what the check was written for, use the Suspense account.

You should clear the Miscellaneous Suspense account by the end of each year; so make sure you write an adequate explanation as to where the numbers came from. This is an accounting technique that keeps your books tidy and easy to understand when, later on, you may be trying to remember what you did.

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