Understanding Suspense Accounts in Accounting

The video tutorial explains the concept and uses of suspense accounts in accounting. It covers their roles as temporary waiting accounts for unclassified transactions and as plug accounts to balance the trial balance. The video also discusses the potential control risks associated with suspense accounts and how to recognize them. Additionally, it presents a positive view of using suspense accounts as a proactive control procedure, incorporating the four-eyes principle. The tutorial emphasizes the importance of resolving suspense account entries promptly to avoid accounting misstatements and potential fraud.

What is one of the primary uses of a suspense account?

• To temporarily hold unclassified transactions

• To record revenue

• To permanently classify transactions

• To track employee hours

In the example provided, what was the suspense account used for?

• Recording travel expenses

• Balancing the trial balance

• Classifying a purchase from Dell Products

• Tracking telephone usage

Who is often referred to as the 'father of accounting'?

• Adam Smith

• John Maynard Keynes

• Milton Friedman

• Luca Pacioli

What is a trial balance used for?

• To record daily transactions

• To balance debits and credits in the general ledger

• To calculate net profit

• To track inventory levels

Which of the following is an indicator of a control risk in suspense accounts?

• Low transaction amounts

• Zero balance at the end of the reporting period

• Frequent use of the suspense account

• Simple account activity

How can incorrect use of suspense accounts affect financial statements?

• It can overstate revenue

• It can understate expenses

• It can understate assets

• It can overstate liabilities

What is a common name for an account that functions as a suspense account but is named differently?

• Undistributed debits

• Accrued expenses

• Prepaid expenses

• Deferred revenue

What principle is incorporated in the proactive use of suspense accounts?

• Revenue recognition principle

• Matching principle

• Four-eyes principle

• Single-entry bookkeeping

In method B of processing incoming payments, what is the role of employee #1?

• Booking the cash receipt by customer in the general ledger

• Closing the open invoice in the receivables subledger

• Approving the payment

• Reconciling the receivables amount

What should be the balance of a suspense account at the end of the day if all goes well?

• Equal to the total receivables

• Positive

• Negative

• Zero