AAT ITBK common mistakes
AAT ITBK · Understand the traps and how to avoid them.
Records money received into the bank as a credit to the bank account, copying the credit notation used on the bank statement.
The bank statement is written from the bank's point of view, where a customer deposit is a credit, and learners carry that convention straight into the business's own cash book.
What to do instead
Treat the business bank account as an asset: money in is a debit to bank, money out is a credit to bank. Take only the amounts and descriptions from the statement, then reverse its convention before posting; check each entry with 'debit the receiver, credit the giver'.
Writes a transaction with two debits or two credits (for example debiting purchases and debiting payables for a credit purchase), or records only the account named on the document.
Attention fixes on the single account the document seems to be about, and the opposite effect is added from memory or left out altogether.
What to do instead
Before posting, write the pair out in the form 'Dr X / Cr Y' and confirm one debit, one credit, same amount. For a credit purchase: Dr purchases, Cr payables. For a payment to a supplier: Dr payables, Cr bank.
Records the owner taking cash for private use as a business expense (for example debiting sundry expenses), and records capital introduced by the owner as sales or other income.
Any outflow is assumed to be a cost and any inflow a sale; capital and drawings are treated as a separate topic rather than part of double entry.
What to do instead
Drawings reduce capital: Dr drawings, Cr bank, and remember drawings is a separate account deducted from capital, never an expense. Capital introduced: Dr bank, Cr capital. Neither passes through the profit and loss account.
When a customer returns faulty goods, credits the returns inwards account instead of debiting it, because the document issued is called a credit note.
The words 'credit note' are taken to mean a credit in the seller's own ledger, when the credit belongs to the customer and the seller's entry is a debit against sales.
What to do instead
Returns inwards (sales returns) has a debit balance: Dr returns inwards, Cr receivables. Returns outwards (purchases returns) has a credit balance: Dr payables, Cr returns outwards. Decide who is returning the goods before choosing the side.
Posts each individual sales invoice from the sales day book into the nominal ledger, or posts the day book total to the wrong side of the double entry.
The nominal ledger (which receives analysed column totals) is confused with the receivables ledger (which holds individual customer accounts), and the control account side is chosen by guesswork.
What to do instead
Use the analysed column totals for double entry: Dr receivables control, Cr sales, plus Cr VAT control where relevant. Individual invoices go only to the customer's account in the receivables ledger, which is a memorandum record and not part of double entry.
Records the whole VAT-inclusive invoice amount in the purchases or expense account, or calculates VAT at 20% on the gross figure.
The invoice total is treated as 'the cost', with VAT seen as part of the price rather than tax the business reclaims or owes to HMRC.
What to do instead
Split every VAT invoice: net to the expense or purchases account, VAT to the VAT control account (debit for input VAT on purchases, credit for output VAT on sales), and gross to payables or receivables. To extract VAT from a VAT-inclusive 20% amount, divide by 6, not multiply by 20%.
In a bank reconciliation, adjusts the cash book for cheques not yet presented and lodgements not yet credited, or adjusts the bank statement for the business's own errors.
Every difference is assumed to be an error needing correction, with no question asked about whether the bank has processed the item yet.
What to do instead
Sort differences by who has already recorded them. Items the bank has processed but the cash book has not (bank charges, interest, direct debits and standing orders, dishonoured cheques, bank errors) go into the cash book. Timing differences (unpresented cheques, uncredited deposits) and the business's own errors stay in the reconciliation statement.
When restoring the petty cash float, debits the expense accounts again for the vouchers already analysed, so those expenses are counted twice.
The imprest top-up feels like 'paying the expenses', but those expenses were recorded when each voucher was analysed in the petty cash book.
What to do instead
Restoring the float is Dr petty cash, Cr bank for the amount spent - no expense entry at that point. Each expense is debited once, when its voucher is analysed.
Concludes that because the trial balance balances the ledger must be correct, and cannot name the errors that leave the trial balance in agreement.
The trial balance is mistaken for a proof of accuracy rather than an arithmetic check that total debits equal total credits.
What to do instead
Learn the errors that do not affect the trial balance agreement: omission, commission, principle, original entry, reversal and compensating errors. Remember that only one-sided entries, unequal amounts, and addition or transcription errors upset the agreement and need a suspense account.
Puts every correction through the suspense account, including errors of principle or commission that never upset the trial balance agreement.
Suspense is treated as a general 'fix it' account, or even as an expense or income account, rather than a temporary home for a difference.
What to do instead
Use suspense only until the cause of a trial balance difference is found, then clear it. Errors that do not affect the trial balance agreement are corrected by a journal between the two correct accounts (Dr the account that should have been debited, Cr the one wrongly credited) with a clear narrative - no suspense entry.