Dealing with a payment incorrectly deposited into bank accountHi!  In this session we’re going to cover how to deal with a payment incorrectly deposited into your business bank account.  So, what has happened in this scenario is money into the bank account and it was a mistake and the money is simply transferred out to the bank account.

What needs to happen is we need a SUSPENSE Account.  So what we need to do is when money is deposited into the bank account we record it against a SUSPENSE Account.  And then when the money is transferred out to the bank account, we record the payment coming out of the SUSPENSE Account.

A SUSPENSE Account is an account in the books of an organisation which items are entered temporarily before the allocation to the correct or final account – definition from Wikipedia.  A really simple analogy is you pour the money into a bucket and then you pour the money out of the bucket and it’s going to affect any of our records, any of our profit and loss or our balance sheet which is exactly what we want to do.

The process that we’re going to follow is initially we’re going to setup a suspense account as a liability account if we don’t already have it.  And then, we’ll allocate the transactions to the suspense account.

So the first step as I said is setup the suspense account as a liability account.  Here I am in Xero.  I clicked on ‘Settings’ on the dashboard and then I’ve clicked on ‘Chart of Accounts’.  And then I’ve come here and I’ve clicked on ‘Liabilities’ tab.  Under my Liabilities heading, I’m going to scroll down the page and you’ll see I have the SUSPENSE Account here.  ‘SUSPENSE account 850’ and I’ll open it up so you can see how it’s setup.

  • Account Type: Current liability
  • Code: a code of your choice
  • Name: SUSPENSE
  • Tax:  BAS Excluded

It shouldn’t have any tax applied to it no matter what country you reside in.  So, tax exclusive for whatever country you are watching this in and then click on ‘save’.

The next part, our step 2 is to allocate the transaction to the SUSPENSE account.  Here I am looking at the actual bank account.  I went ‘Accounts’, ‘Bank Accounts’ to find this or I found it from my ‘dashboard’ and I’m here reconciling my bank accounts, that’s my purpose to come here.  So you can see this heading is very easy.  Yours isn’t going to be that simple but what’s going to happen here is the incorrect payment was received $1,000 and the incorrect payment was transferred out of the account $1,000.  What I’m simply going to do is I’m going to allocate it to cash and I’m going to allocate it to the suspense account here and then ‘cash’ and ‘SUSPENSE account’.

Now, notice again no tax on it.  It shouldn’t be probably allocated to any categories.  I don’t really at this stage for myself need to allocate a description, but if you do want to put in a description there, I’m going to copy this.  ‘Incorrect payment transferred out of the account’ and I’m simply going to click the ‘OK’ button to reconcile or play our game our reconciliation snap there.  And there you have it, the two amounts have been receipted, coded and allocated out of the account.

So in this session I explained how to deal with the payment incorrectly deposited into a business bank account and resolved that problem by using a SUSPENSE account.  My name is Heather Smith.  Thank you for watching.