BGCSE Accounting 1442 common mistakes
BGCSE Accounting 1442 · Understand the traps and how to avoid them.
Recording inventory at a deliberately low value or creating an unspecified provision because the candidate believes prudence means 'always understate assets'
The definition of prudence is memorised as 'be cautious' without learning that it applies only to genuine uncertainty and must not create hidden reserves
What to do instead
Apply prudence by choosing the lower of cost and net realisable value for inventory, recognising foreseeable losses, and disclosing the estimate used; do not reduce a figure simply to be 'safe'
Posting discount received to the discount allowed account, or recording a cash discount as a trade discount in the sales day book
The two discounts have similar names and both reduce the amount a customer pays, so candidates confuse a supplier discount with a customer discount
What to do instead
Learn the double entry: discount allowed is a debit expense when a customer pays early; discount received is a credit income when the business pays a supplier early; trade discount is never posted, it is deducted on the invoice before recording
Recording a customer's returned goods only in the sales day book or only on the credit note, without crediting the customer's account
The return is treated as a reduction in sales rather than as a separate return inwards transaction, so the second half of the double entry is omitted
What to do instead
Record every credit note as Dr returns inwards and Cr receivables; keep returns inwards separate from sales in the trial balance and income statement
Forcing the suspense account to balance by entering a made-up figure before locating the underlying error
The suspense account is treated as a balancing 'plug' rather than as a temporary account used only for a one-sided error
What to do instead
Use the suspense account only when a trial balance difference exists; investigate the difference first, check for single entries, addition errors and transpositions, and clear suspense only when the actual error is corrected
Adding unpresented cheques to the cash book balance, or subtracting them from the bank statement balance, when preparing a bank reconciliation
The reconciliation is memorised as a list of adjustments without understanding which balance is being reconciled and which items the bank has not yet processed
What to do instead
Use a fixed template: bank statement balance plus deposits not yet credited minus unpresented cheques equals updated cash book balance; if either balance is an overdraft, write it as a negative and test the arithmetic with small numbers
Including the owner's drawings as an expense in the income statement
Drawings are cash payments made by the business, so they look like expenses and are entered in the cash book, but they are not business expenses
What to do instead
Remove drawings from expenses; deduct drawings from opening capital in the capital section of the statement of financial position, and show profit for the year added to capital
Omitting closing inventory from the trading account, or adding it to purchases instead of subtracting it when calculating cost of sales
The closing inventory adjustment is learned as a journal without linking it to the cost of sales formula, so the direction of the adjustment is reversed
What to do instead
Write the formula first: cost of sales = opening inventory + purchases - closing inventory; then show closing inventory as a current asset in the statement of financial position
Sharing residual profit between partners before deducting interest on capital, partners' salaries and interest on drawings
The appropriation account is treated as a simple profit-sharing calculation, so the required order of appropriations is ignored
What to do instead
Prepare the appropriation account in order: start with profit for the year, add interest on drawings, deduct interest on capital and partners' salaries, then share the residual profit in the profit-sharing ratio
Treating subscriptions received during the year as the subscription income for the income and expenditure account, ignoring arrears and prepayments
Cash received is mistaken for income earned, and the accruals concept is not applied to non-profit organisations
What to do instead
Adjust cash received: subscriptions income = subscriptions received + opening arrears - closing arrears - opening prepayments + closing prepayments; show unpaid subscriptions as a receivable and prepaid subscriptions as a liability
Using the wrong profit figure or the wrong capital figure in ratio calculations, for example calculating return on capital employed with net profit and closing capital, or calculating gross margin with net profit
Ratio formulae are recalled loosely and the labels 'gross profit', 'net profit' and 'capital employed' are not matched to the correct formula
What to do instead
Write the formula before substituting numbers: gross margin = gross profit/revenue; net margin = net profit/revenue; return on capital employed = operating profit/capital employed; state whether opening, closing or average capital is used