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    'Merits and Demerits of Suspense Account' With You

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    geddadaarun
    Merits and Demerits of Suspense Account

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    © All Rights Reserved
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    'Merits and Demerits of Suspense Account' With You

    Uploaded by

    geddadaarun
    3 views2 pages
    Merits and Demerits of Suspense Account

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    'Merits and Demerits of Suspense Account' with you

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    Merits and Demerits of Suspense Account

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    3 views2 pages

    'Merits and Demerits of Suspense Account' With You

    Uploaded by

    geddadaarun
    Merits and Demerits of Suspense Account

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Introduction:

    Preparing a suspense account is an essential accounting procedure, which is used to maintain financial
    records and to correct errors in accounting. A suspense account is created when there is uncertainty or
    incompleteness about a particular transaction or when there is a discrepancy in the accounts, and the
    final outcome is unclear. In this essay, we will discuss the advantages of preparing a suspense account
    and the disadvantages of preference suspense account.

    Advantages of Preparing Suspense Account:

    There are several advantages of preparing suspense accounts, and they are as follows:

    1. Correcting Error:

    One of the major advantages of preparing suspense accounts is that it helps in correcting errors. Any
    account that is unclear, incomplete, or incorrect can be rectified using suspense accounts. For example,
    if an entry has been posted to the wrong account or if it is unclear where a transaction should be
    posted, then a suspense account can be used to correct the mistake.

    2. Identifying Unrecorded Transactions:

    Another advantage of preparing suspense accounts is that it helps in identifying unrecorded


    transactions. A suspense account can be created for an amount that is received, but its source is not
    known. After a while, when the source is identified, the amount can be transferred from the suspense
    account to the appropriate account.

    3. Ensures Accuracy of Financial Statements:

    Preparing suspense accounts also ensures the accuracy of financial statements. Suspense accounts
    provide a temporary solution to errors in transactions, which ensures that the final balances in the
    financial statements are correct.

    Disadvantages of Preference Suspense Account:


    Preference suspense accounts also have several disadvantages, which are:

    1. Delay in Reporting:

    One of the main disadvantages of preference suspense accounts is that it causes delays in reporting. A
    suspense account is created when the transaction is initially recorded. Until the transaction is resolved,
    the suspense account remains unreported, causing a delay in financial reporting.

    2. Misrepresentation of Financial Statements:

    Another disadvantage of preference suspense accounts is that they may misrepresent the financial
    statements. Suspense accounts are created as a temporary solution to errors in transactions, and there
    is a chance for the account to remain unresolved for a long time, which could lead to a
    misrepresentation of the financial statements.

    3. Difficulty in Identifying Transactions:

    Preference suspense accounts may also make it challenging to identify transactions that are unclear or
    incomplete. If a suspense account is created for a particular transaction, it may be difficult to identify
    the nature of the transaction.

    Conclusion:

    In conclusion, preparing a suspense account is a crucial accounting procedure that helps in maintaining
    accurate financial records. While there are several advantages to preparing suspense accounts, there
    are also disadvantages to creating preference suspense accounts, which need to be considered.
    Regardless of the type of suspense account used, it is essential to ensure that any errors or incomplete
    transactions are resolved quickly to maintain the accuracy of financial statements. Ultimately, a well-
    maintained accounting process will provide valuable information that businesses can use to grow and
    develop.

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