ACCA FA common mistakes
ACCA FA · Understand the traps and how to avoid them.
Recording a straightforward transaction with the entries the wrong way round - e.g. debiting sales and crediting cash for a cash sale, or debiting a payable when paying a supplier.
Candidates learn rules ('debit cash') as isolated facts rather than as the dual effect of every transaction, so under time pressure they pick the account that sounds right instead of working out which side increases.
What to do instead
Before writing any entry, state the two effects in words ('asset cash increases, income sales increases') and map each to Dr/Cr using the accounting equation (assets = liabilities + capital + income − expenses). After every entry, confirm total debits equal total credits on that entry before moving on.
Treating the cost of extending a building, or the initial cost of a machine, as an expense in the period, while capitalising a routine repair; or expensing legal fees on buying property.
Candidates focus on whether cash was spent rather than on whether the spend creates future economic benefit or restores an existing condition, and they are unsettled by costs that are large but clearly revenue in nature.
What to do instead
Apply a one-line test to each item: does it create a new asset or add to the earning capacity/life of an existing one (capitalise), or does it merely maintain the current condition (expense)? Costs necessarily incurred to bring an asset to its working condition and location - including legal and delivery costs - are capitalised.
Getting the direction of period-end accruals and prepayments wrong - e.g. crediting expenses for an accrual, or debiting expenses for a prepayment - and then carrying the wrong figure into the financial statements.
Candidates memorise 'accrual = debit expense' without linking it to the liability or asset being created, so when the question is phrased as a payable or a prepaid amount they invert the entry.
What to do instead
Build the entry from the statement of financial position side first: an accrual creates a liability (credit), so the expense must be debited; a prepayment creates an asset (debit), so the expense must be credited. Check that the resulting expense equals cash paid plus closing accrual minus opening accrual plus opening prepayment minus closing prepayment.
When the trial balance fails to balance, inserting the difference into a suspense account and presenting the financial statements with the suspense balance still there, or 'correcting' it by adjusting an unrelated account.
Time pressure plus the belief that a suspense account is a legitimate permanent account rather than a holding place; students also fear that investigating will waste exam minutes.
What to do instead
Treat any suspense balance as an error to be resolved: use it only as a temporary plug, then work through the likely causes (one-sided entry, addition error, extraction/transposition error, posting the same side twice) and clear it before drafting the statements. If a real error cannot be found, disclose the remaining suspense balance separately rather than burying it in another line.
Assuming every accounting error will cause the trial balance not to balance - for example expecting an error of principle, an error of commission, a compensating error or a complete omission to show up as a trial balance difference.
Candidates conflate 'the accounts are wrong' with 'the debits and credits differ', because the trial balance is taught as the arithmetic check on double entry and its limitations are glossed over.
What to do instead
Learn the short list of errors that keep the trial balance in balance (omission, commission, principle, original entry, reversal of entries, compensating errors) and the short list that breaks it (single-sided entries, unequal amounts, addition and extraction errors). Test each scenario by asking whether both sides of the double entry were posted with equal amounts.
Omitting the closing inventory adjustment from the statement of profit or loss, or deducting closing inventory from purchases without crediting cost of sales, so cost of sales and profit are both misstated.
Closing inventory appears on the statement of financial position as an asset, so candidates think they have 'dealt with it' and forget it must also flow through cost of sales.
What to do instead
Always write the full entry: Dr inventory (SOFP) / Cr cost of sales, and for opening inventory Dr cost of sales / Cr inventory. Then build cost of sales as opening inventory + purchases − closing inventory and check the resulting figure is sensible relative to revenue.
Treating prudence as a licence to deliberately understate assets or overstate liabilities - for example providing for a possible future loss with no obligation, or refusing to recognise a gain that is virtually certain.
Prudence is memorised as 'be cautious' rather than as the exercise of caution when making judgements under uncertainty, and candidates import the older 'conservatism' idea of deliberately depressing profits.
What to do instead
State prudence as: recognise expenses and liabilities on the earliest reasonable evidence, but recognise income and assets only when they are sufficiently certain - and never deliberately bias the numbers. Neutrality is part of faithful representation, so a deliberately understated asset is just as wrong as an overstated one.
Computing goodwill on consolidation as simply cost of investment less the nominal value of shares acquired, ignoring fair value adjustments and the NCI share of net assets.
Candidates reduce the calculation to one remembered formula and skip the two steps that make it a consolidation calculation rather than a subtraction, often because fair value adjustments feel like extra optional detail.
What to do instead
Write out the proforma every time: consideration transferred + NCI at fair value (or share of net assets) + fair value of previously held interest − fair value of identifiable net assets acquired (share capital + retained earnings at acquisition ± fair value adjustments). Compute the subsidiary's net assets at acquisition as one figure first, then plug it in.
Confusing mark-up with margin - dividing gross profit by cost of sales when the question gives a margin, or using profit before tax instead of profit after tax (or vice versa) in a ratio such as return on capital employed or interest cover.
Both ratios are taught as one formula each without the denominator being tied to the wording of the question, and candidates grab whichever profit figure appears first on the statement of profit or loss.
What to do instead
Anchor each ratio to its definition and to the base given: mark-up is on cost, margin is on revenue, so gross profit = revenue × margin = cost × mark-up. For ROCE use operating profit (PBIT) over capital employed; for interest cover use PBIT over finance cost; for returns to shareholders use profit after tax and preference dividends. Label the numerator and denominator before calculating.
Describing the purpose of financial statements as 'to show how much cash the business made' or 'to calculate tax', and identifying shareholders as the only users who matter, so questions on stewardship, user needs and the difference between profit and cash are answered from intuition.
Candidates have not separated the objective of general purpose financial reporting (decision-making and stewardship for a wide range of users) from the specific concerns of one user group or from the cash flow statement's separate role.
What to do instead
Learn the objective as a single sentence and a user list with each user's information need (investors - stewardship and returns; lenders - solvency and liquidity; suppliers - creditworthiness; employees; customers; government; public). When asked about profit versus cash, explain accruals, non-cash items and timing differences explicitly rather than treating the two as interchangeable.