Interest in suspense is a particular kind of asset that may appear on a company’s -- or even an individual’s – balance sheet. It often denotes that a company has money due as the result of a loan, but that its borrower has not paid on the loan per an agreement. While it is possible that the interest and loan payments may never be made, the usage of the term does not necessarily mean that this is true or expected to be true. You must investigate the circumstances behind the usage of the term on a case-by-case basis to understand the ramifications for the health of the company on whose balance sheet it appears.
A balance sheet is an account document that shows a company’s – or even an individual’s – assets and liabilities. Assets are items of value, be they tangible or intangible, while liabilities are responsibilities a company has that require outgoing money or assets. However, there are various kinds of assets and liabilities, and they have different names on the balance sheet to describe various circumstances that may surround them.
Assets can be tangible or intangible. Personal assets might be a house, a car or even a college education. Companies’ assets can be found on their balance sheet, and include many of the same things that a person’s might, including real estate, inventory or even the value of a brand name. It might also include a loan, as a loan would generate interest income -- an asset -- in addition to maintaining the value of the principal (also an asset).
While a loan made is an asset, sometimes the borrower isn’t able to repay it. This doesn’t change the fact that the loan is an asset; however, it is then referred to as a nonperforming asset, as it isn’t producing the value for the lender that it was intended to.
Interest in suspense appears on a balance sheet when a company has loaned money (an asset) but the loan has become a nonperforming asset. This means that the interest is due to the company, and that the company is entitled to the interest. But it has not received it, so it falls into this special designation on the balance sheet, because it is not available to the company yet, and it’s possible that it may never be received.