Addendum to Module 3

I. Assignment Instructions

Since the software has went through a few revisions since the assignment was written, the instructions my not be up to date. Corrections were made where noticed, but some may have been missed.

II. Goods Received / Invoice Received Suspense Account

The main purpose of the suspense account is to “hold” all transactions that need further information or processing in one location by themselves so they can be easily reviewed and processed or corrected. One main difference between this “hold” and a parked or held document is - the amounts in this suspense account ARE posted to the general ledger and financial statements, as you will see in the assignment.

Why this account is an accrued liability.

This account is used to temporarily record goods received and invoices received. The most common scenario is to receive the goods before the invoice. However, the reverse can happen. GAAP requires the asset and liability to be recorded at the time you take possession. Possession occurs either at time of shipment (FOB shipping point) or receipt (FOB destination). For simplicity, we will assume FOB destination.

  • Assuming you receive the inventory first: In this situation, Inventory is debited and the GR/IR account credited. Since at this point (to conform to GAAP) both the asset and liability must be recorded, then the credit needs to be recorded to a liability account, even if it is just a close estimate. So the GL/IR account is an accrued liability. (If it were an asset, then the entry would have no effect on the financial statement, with both assets and liabilities understated.)
  • Assuming you receive the invoice first: In this situation, GR/IR is debited and AP credited. Since goods have not been received, then there is no asset and no liability. So GR/IR, a liability account with a debit balance, will offset the credit in AP, creating a net -0- effect, conforming to GAAP. (If this account were an asset, then you would be recording both an asset and liability that do not exist). Later when the goods are received, Inventory will be debited and GR/IR credited, resulting in both the asset and liability being recorded.

The best way to let this be reported automatically and correctly by the system is to code the account as an accrued liability and also to code it to report on the same line as AP on the balance sheet.