What is Interest Suspense Account

For a contract including interest at a fixed rate over a fixed term, the balance sheet will record its residual value payable as interest in suspense.

Forecasting Interest in Suspense

What follows is automatically calculated and applied to Figurewizard forecasts without intervention from a user. Examples can be seen in the sample assets and liabilities forecast.

Interest and the Balance Sheet

The general rule concerning interest charges is that they are only applied to the accounts as and when they arise.

In the case of formal agreements such as contracts for asset finance or loans where interest is fixed for the duration, the interest is described as being in suspense and disclosed in the balance sheet - First as an asset to be balanced by current liabilities (interest payable within 12 months) and long term liabilities representing interest payments due after twelve months.

How Interest in Suspense is Calculated

Take for example an asset finance loan of £3,000 taken out at the beginning of the financial year with interest fixed at 7% p.a. (£210 p.a.) repayable over 48 months.

An interest suspense account is first created for the 36 months interest payable of £630 that remains at the end of the first financial year, which is then cancelled out in the balance sheet by its current and long term liabilities as follows:

Interest Suspense Acc. £630 Current Asset
Short term Interest payable - payable within 12 months £210 Current Liability
Long Term Interest payable - payable after 12 months £420 Long Term Liability

The reason for this self - cancelling approach is to disclose fixed interest liabilities in the balance sheet, while maintaining the rule that interest is only charged to profits as and when it arises.

Exceptions to Interest Suspense

Disclosing interest in the balance sheet in this way only applies to liabilities for fixed term loans where the values of interest payable are also fixed, making them known quantities.

Estimates for future interest payable on the likes of bank overdrafts or factoring / invoicing debt, with values that will fluctuate or any other interest rates that may vary over time, are not required to be disclosed in your balance sheet.

When applicable Figurewizard calculates and applies interest suspense accounts to your balance sheet forecasts.

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