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How To Deal With A Customer Who Is Also A Supplier In Xero

Use a Suspense Account ...

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POSTED BY ALISON MEAD ON 24/06/2019 @ 8:00AM

What do you do with a customer who is also a 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?

A Suspense Account is a really useful bookkeeping tool when dealing with a customer who is also a supplier!

A Suspense Account is a really useful bookkeeping tool when dealing with a customer who is also a supplier!

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In Xero, there is quite a clever way around this problem using something called a Suspense Account. Firstly though, some background as to what the suspense account is and how to use it

The Suspense Account in accounting terms is an account in the Chart of Accounts 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 at 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!"

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, or 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.

To do this, you need to make sure the Suspense Account is set up to enable payments. In Xero, 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 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.

So, now you know how to neatly match off customer invoices and supplier bills in Xero in order to keep your bookkeeping neat and tidy and not leave any loose ends. I can show you how to do it in Sage too!

"Would you like to know more?"

If you'd like to find out more about the Suspense Account, or any other aspect of bookkeeping with Xero or Sage that may be baffling you, do give me a call on 01604 420057 or click here to ping me an email and let's see how I can help you.

Until next time ...


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More about Alison Mead ...

Alison loves bookkeeping and supporting bookkeepers. She has been helping clients to be better bookkeepers in Sage 50 for over 24 years and has been Xero Accredited in accounts and payroll for a number of years too.

She specialises in a very unique hand-holding method of training, helping bookkeepers and business owners to use their accounts software as and when they need support in setting up and producing their invoices, reports and financial information.

Alison combines her role at Silicon Bullet with her Forever Living network marketing businesses and is often to be seen at business networking meetings as she likes to keep busy.

You know what they say: if you want something done well ask a busy person!


01604 420057