ABA common mistakes
ABA · Understand the traps and how to avoid them.
Reading a journal entry description and recording the effect on the wrong side of the account (e.g., debiting a liability increase instead of crediting it).
Candidates memorize 'increase/decrease' rules per account type but freeze under exam pressure and invert normal balances, especially for contra accounts and dividends.
What to do instead
Before answering, write the account type and its normal balance (DEALER/GIRLS mnemonic), then derive the entry mechanically from that rule rather than from intuition.
Computing depreciation or amortization for a partial year without prorating, or applying the wrong convention (mid-month, half-year) when the stem specifies one.
Candidates default to full-year formulas they practiced and skip re-reading the dates and convention stated in the stem.
What to do instead
Extract the acquisition date and the stated convention into a one-line timeline before calculating; if the stem is silent, state the assumption explicitly and check answer choices for the alternative.
Classifying an item as operating, investing, or financing based on the account name rather than the nature of the cash flow (e.g., interest paid, dividends received, or gains on asset sales).
Candidates conflate income-statement classification with cash-flow classification and forget that gains/losses are adjustments, not cash flows.
What to do instead
For every cash-flow item, ask 'what transaction generated the cash?' and remove non-cash gains/losses from operating; drill the interest/dividends treatment under the applicable framework until automatic.
Missing required disclosures or misplacing an item between the financial statements and the notes (e.g., putting a contingent liability on the face of the balance sheet instead of disclosing it).
Candidates focus on numbers and treat disclosure requirements as low-yield, so they under-recognize recognition-versus-disclosure distinctions.
What to do instead
Maintain a one-page recognition-vs-disclosure matrix for contingencies, subsequent events, and related-party items, and review it before each reporting block.
Building a multi-step income statement or retained earnings roll-forward and dropping an intermediate subtotal (e.g., omitting discontinued operations or prior-period adjustment from the opening retained earnings).
Candidates compute line items correctly in isolation but lose track of the required statement structure and sequencing.
What to do instead
Draft the statement skeleton with all required subtotals first, then plug numbers into the skeleton; verify that the roll-forward ties beginning plus net income minus dividends to ending.
Failing to eliminate intra-entity transactions and unrealized profits when consolidating, or using the wrong ownership percentage for the income statement versus the balance sheet.
Candidates apply a single percentage everywhere and forget that the income statement uses the period's ownership while the balance sheet uses the ending ownership.
What to do instead
Set up a consolidation worksheet with separate columns for income-statement share and balance-sheet share, and explicitly list eliminations (intercompany sales, profit in inventory, intercompany receivables) before totaling.
Applying the wrong tax rate or ignoring the difference between book and tax basis when computing deferred taxes, or netting a deferred tax asset against a liability in different jurisdictions.
Candidates treat deferred tax as a simple rate times a number and skip the temporary-difference analysis and jurisdictional netting rules.
What to do instead
Build a temporary-difference schedule (book basis vs. tax basis, difference, rate, DTA or DTL) and apply netting only within the same tax jurisdiction and same taxable entity.
Answering tax questions using current-year thresholds, phase-outs, or rates from memory without checking the year stated in the stem.
Candidates rely on remembered figures from study material or prior years, and exam stems often specify a different tax year.
What to do instead
Circle the tax year in the stem before computing; if the applicable threshold is not provided and cannot be derived, flag the item and return to it rather than guessing a remembered number.
Choosing the highest contribution margin product instead of solving for the optimal mix when a constrained resource exists, or ignoring the constraint entirely.
Candidates overlearn 'maximize contribution margin per unit' and miss that the ranking must be per unit of the scarce resource.
What to do instead
When a constraint is present, always compute contribution margin per unit of the constrained resource and rank on that basis; check whether demand limits the top-ranked product before allocating remaining capacity.
Treating fixed costs as relevant in a special-order or make-or-buy decision, or misclassifying a sunk cost as avoidable.
Candidates carry full-absorption unit costs into short-run decisions and do not separate avoidable from unavoidable fixed costs.
What to do instead
For every decision, list only costs that differ between alternatives and are future-oriented; explicitly strike through sunk and allocated common fixed costs before comparing alternatives.