What do you do if your customer is also your supplier, and you don’t want to do needless bank transfers to them to pay for services, only to then receive the money back from them for your invoices?
In Xero there is quite a clever way around this problem using the Suspense Account. First some background as to what the suspense account is and how to use it/
What is the Suspense Account?
The Suspense Account in accounting terms is an account in the chart of acocunts where amounts can be temporarily posted until you know where they should really go. In traditional double entry bookkeeping systems, every transaction needs 2 sides, a debit and a credit. If you know where one side needs to go, but you are not sure about the other side, the suspense account allows you to at least get your entry half right whilst you then look into where the amount should really be and you can ‘journal’ or move it to the correct account.
In systems like Xero (and Sage) the suspense account is a useful place to put bank transactions if you are not sure where the money has gone or who has paid you whilst you research the entry to find out who it should be allocated to. Think of it as the sin bin for naughty transactions waiting to find their proper place. Ideally, at the end of a period or year, the suspense account should always be Zero, as you are able to place amounts to their correct account codes. In Xero the Suspense Account is 850 by default, in Sage it is 9998.
How to use the Suspense Account for Supplier and Customer Invoices
If you have a supplier who is also a customer, then you can use the Suspense account as a temporary bank account to post a Sales Invoice Receipt to, then go to the corresponding Supplier invoice and post a payment for the same amount to the suspense account. Make sure the amounts you post match up, ie if one invoice is more than the other then use the smaller amount for the transaction. Then you can pay the balance if the Supplier Invoice is larger (or request a payment for the balance if the Sales Invoice is larger.
Firstly to do this you need to make the sure the Suspense Account (850 in Xero) is set up to Enable Payments. To do this go to Settings -> Chart of Accounts and click on the name Suspense to open the Edit Account Details box. You can then tick the ‘Enable payments to this account’ box. You can find our details by clicking Contact Us at the top of the page.
Edit Account Details
You can now use the suspense account in the Paid To box in the receive payment area of the Sales Invoice, and also in the Paid From box on the Purchase Bill. This will allow you to pay or part pay the invoices (remember to use the lowest of the two amounts) and will leave the suspense account with a zero balance after you have processed both transactions.
I always double check by going to Settings -> Chart of Accounts and looking at the balance of the Suspense Account that I have correctly entered the payments and receipts, which you can see in the screen shot below cancel each other out.
Receive a Payment
Make a Payment
Check the Suspense Account
So now you know how to neatly match off Customer Invoices and Suppler Bills in Xero in order to keep your bookkeeping neat and tidy and not leave any loose ends.
If you have found this post useful then please leave a comment below – and if you would like to learn how to use Xero better then please get in touch about our bespoke hand holding training offered either in person or via Skype if you are not local to us in Northampton / Milton Keynes.
