The term “suspension account” can have several different meanings, depending on the context. In the general business world, a suspense account is a section of a company’s financial books where it can record ambiguous entries that require further analysis to determine their proper classification. In the mortgage service, the manager can use a suspense account to temporarily park funds if a borrower has only made a partial payment for that month. In investing, a holding account is a type of brokerage account where a client’s proceeds from the sale of an investment can be held until the client uses the money to invest in something else.
Key points to remember
- A suspense account is an accounting tool that can be used for different purposes in different business contexts.
- A business can use a suspense account to record ambiguous entries in their books that require clarification before they can be assigned to their own accounts.
- Mortgage managers can use a suspense account when a borrower misses a monthly payment or breaks their monthly payment into partial amounts.
- In investing, suspense accounts are used by brokerage firms to hold clients’ money until it can be reinvested.
- In any case, suspense accounts are intended to be temporary.
Business suspense accounts
Suspense accounts in a company big general book usually contain entries where there are uncertainties or discrepancies that need to be resolved. For example, if a customer of a business makes a payment but writes down their account number incorrectly, that money may be placed in a suspense account until the error is corrected and the payment can be properly credited. In another scenario, a customer may make a payment but not specify which of several outstanding invoices they intend to pay with those funds.
Regardless of the issues in question, suspense accounts are eliminated once the issue is resolved, in which case the funds are promptly transferred to their properly designated accounts. At this point, the suspense account should reach a balance of zero dollars. While there is no set timeline for completing a compensation process, many companies try to accomplish it regularly on a monthly or quarterly basis.
Despite its mysterious connotations, “suspense” in this case simply refers to the fact that a transaction or its designation on a company’s books has been temporarily suspended, pending further action.
Mortgage suspense accounts
A mortgage manager can use a suspense account to hold funds when a borrower misses their monthly loan repayment, perhaps by accident.
In some cases, a borrower may deliberately make partial payments, dividing their monthly payment into two installments, for example. In such cases, mortgage officers can use a suspense account to hold the first partial payment until they receive the second payment.
After receiving enough money to constitute a payment in full, the mortgage agent will then pay the lender their interest and principal for that month, together with the appropriate amount at any crook account that was set up to cover property tax or home insurance payments.
Likewise, if a borrower pays more than they owe for a given month — without indicating how those funds should be applied — the manager can place the extra money in a suspense account for the time being.
The rules mortgage officers must follow are set out by the Consumer Financial Protection Bureau, which enforces federal law. Real Estate Settlement Procedures Act. For example, the periodic account statements that managers are responsible for providing to borrowers should show all payments that have been placed in a suspense account and the total amount of money in that account. The servicer should also explain what the borrower needs to do to have that money applied to their mortgage payment.
Brokerage suspense accounts
Similar to other types of suspense accounts, brokerage suspense accounts temporarily hold funds while transactions are completed. For example, if an investor sells a group of securities worth $1,000 but plans to quickly invest that money in another set of securities, the $1,000 from the sale will be transferred to a suspense account until so that they can be assigned to the new purchase. . A suspense account can also be established if additional information is needed to complete the transaction or if there are other complications that need to be resolved.
The amount of money held in a suspense account is called the “suspense balance”.
What is a General Ledger?
A general ledger is where a business records its assets and liabilities on an ongoing basis, broken down into separate categories or accounts. Suspense accounts are used for assets or liabilities that require further clarification before they can be assigned a permanent place in the general ledger.
What is the difference between a suspense account and a clearing account?
Suspense accounts and clearing accounts are used to temporarily record transactions, until they can be permanently assigned. Suspense accounts, however, are more typically used when there is a question about the transaction that needs to be resolved.
Do mortgage suspense accounts earn interest?
No, unlike mortgage escrow accounts, money in a mortgage suspense account does not earn interest to the borrower.
The essential
A suspense account is basically an accounting technique to track funds for a brief period until particular issues are resolved. A business can use a suspense account to record payments it has received, but which cannot be properly accounted for until certain missing information (such as an invoice number) has been obtained. In mortgage servicing, it is a way for the manager to record incomplete monthly payments until the borrower has made payment in full. Brokerage firms also use suspense accounts to, for example, track a client’s money between when they sell an investment and when they reinvest that money.
