When accountants take care of everyday expenses and revenue of law firms, they come across transactions that are unfamiliar or out-of-the-ordinary expenses or revenues that they then temporarily keep track of in suspense ledgers. This helps accountants to be more accurate and precise and avoid fatal errors that can harm the law firm’s finances.
Use of Suspense Ledgers
Suspense ledgers are part of general ledgers themselves. They are used to ‘suspend’ specific transactions and hold them until further information on the transaction is obtained. They can then be safely moved back into the rightful parts of the general ledger. Suspense ledgers help maintain coherence within the general ledgers, and accountants use them from time to time to, as earlier mentioned, avoid any fatal errors.
Here is a short list of when you can use suspense ledgers:
- The sender of an invoice is undefined.
- The recipient of an invoice is undefined.
- The reason for the invoice is unclear.
- The law firm receives payments partially or in installments.Â
- A payment to the law firm is incomplete.
Example of a suspense ledger:
A client of the law firm has agreed to pay hourly. The client sends £350 to the law firm in payment. The accountant reviews the transaction and suspects the payment made is less than the expected payment. So, the accountant debits the £350 from the law firm’s cash account and credits £350 to a suspense ledger until the accountant gets more information on the matter.
| Account | Debit | Credit |
| Cash Account | £350 | |
| Suspense Account | £350 |
Ways to Maintain a Suspense Ledger
Suspense ledgers should be taken care of with great accuracy and care. Here are a few tips on ways to maintain suspense accounts:
- Check suspense ledgers daily.
Accountants reviewing the law firm’s suspense accounts allow them to understand and be aware of the transactions that need that special attention.Â
- Make notes and draw patterns.
Notes on the suspense ledger transactions make it easier for them to be reviewed later. Taking notes acts as record-keeping and helps with maintaining accuracy.
- Acquire clarification.
Review the notes and ask for information on the transactions in the suspense ledgers.
- Keep suspense ledgers clean.
Once enough information is acquired for clarification, clear out the suspense ledgers and move the transactions to the general ledger. Clearing suspense ledgers clear is important in keeping it clutter-free.
Law firms might face difficulty in maintaining their suspense ledgers, just like any other legal accounts management, given how busy the staff stays with their clients. This is where a credible accountant and legal bookkeeper comes in handy. With the right automation software for record-keeping, law firms can be assured of complete accuracy and reliability.
What to Avoid When Using a Suspense Ledger
An overuse of suspense ledger is a problem. Suspense ledgers may be misused due to either poor management or malpractice.
According to the SRA (Solicitors Regulation Authority), suspense ledgers can be categorised and how to deal with them:
- Above adequate – Entries in the suspense accounts are less than a week old.
- Adequate – Entries are about a month old.
- Below Adequate – Suspense accounts hold entries that stay unclear or unjustified for a long period of time.
Some suspense ledger misuse are as follows:
- Suspense ledgers cannot be used to hold a client’s money unnecessarily and should be cleared out as soon as possible.
- Suspense ledgers cannot be used to cover or hide errors or mismanagement of a client’s finances.
- Suspense ledgers cannot be used in place of actual accounting records.
- Suspense ledgers cannot be used for unrelated personal transactions.
Any misuse of the suspense ledger might result in –
- fraudulent and theft charges
- loss of accounting credibility
- administrative disciplinary actions
30 working days is the most ‘adequate’ a suspense ledger stays. The best practice for accountants is to review, clear out, and move accounts within that period.
