ICAEW ACA Accounting (ICAEW) common mistakes
ICAEW ACA Accounting · Understand the traps and how to avoid them.
Recording a credit sale by debiting sales and crediting receivables, i.e. reversing the direction of the entries, rather than debiting receivables and crediting sales revenue.
Candidates memorise 'debit the receiver, credit the giver' as a slogan without anchoring it to the accounting equation, so when the transaction is a sale on credit they cannot decide which account gains value and which gives it up.
What to do instead
Before writing any entry, state the two accounts affected and classify each (asset, liability, income, expense, capital). Then apply: assets and expenses increase on the debit side; liabilities, capital and income increase on the credit side. Practise by writing the entry and immediately checking that debits equal credits and that the equation still balances.
Treating the trial balance as proof that the ledger is correct, and failing to look for errors it cannot detect, such as a transaction completely omitted, a transaction posted twice, or two compensating errors of equal amount.
The trial balance only tests arithmetical equality of debits and credits, but candidates treat 'it balances' as 'it is right' and then cannot explain why the draft profit differs from the corrected figure.
What to do instead
Learn the closed list of errors that do not affect trial balance agreement (omission, commission, principle, original entry, reversal, compensating) and the list that do (single-sided posting, addition errors, transposition of one side only). For each correction, write the journal to adjust the ledger and state the effect on profit separately from the effect on the statement of financial position.
Preparing a statement of financial position for a sole trader that omits closing capital or shows capital as a single opening figure, instead of opening capital plus profit less drawings.
Candidates conflate the capital account with the bank balance, or forget that drawings are a reduction of capital rather than an expense in the statement of profit or loss.
What to do instead
Always build the capital section in three lines: opening capital, add net profit (or deduct loss), deduct drawings, giving closing capital. Check it equals assets less liabilities. Separately confirm drawings never appear in the profit or loss account.
On partnership admission or retirement, allocating the revaluation gain or goodwill adjustment using the old profit-sharing ratio instead of the ratio in force at the date of change, or ignoring the change in ratio entirely.
Candidates apply the final ratio shown in the question to every adjustment because it is the last number they read, forgetting that revaluation and goodwill belong to the partners who bore the risk before the change.
What to do instead
Draw a timeline of ratio changes across the question and label each adjustment with the period it relates to. Revaluation gains and goodwill write-offs on admission go to old partners in old ratio; the new partner is credited only with capital introduced. Show the partners' capital accounts in columnar form so each movement is traceable.
Calculating depreciation on the carrying amount after deducting the current year's charge, or applying the reducing balance rate to cost each year, producing a charge that does not match the method stated.
Candidates mix the straight-line and reducing balance formulas under time pressure, and forget that the reducing balance charge is applied to the opening carrying amount, not to cost.
What to do instead
Write the method name at the top of the working. Straight line: (cost minus residual value) divided by useful life. Reducing balance: opening carrying amount multiplied by the rate. For mid-year acquisitions, pro-rate the charge by months. Reconcile the accumulated depreciation account for the year, including any disposal, before transferring the charge to the statement of profit or loss.
Recording an irrecoverable debt by debiting the irrecoverable debts expense and crediting the customer's receivable account but then failing to release any allowance already held against that specific balance, so the allowance is double-counted.
Candidates treat the write-off and the allowance as independent adjustments and do not revisit the allowance balance after the debt is removed from receivables.
What to do instead
Sequence the adjustments: first write off the specific debt (debit expense, credit receivables), then recalculate the allowance on the remaining receivables, then post only the movement in the allowance to the expense account. Show the allowance account as a working with opening balance, amount released or increased, and closing balance.
Treating a prepayment as an accrual, or omitting the closing accrual for an expense invoiced in arrears, so profit and the statement of financial position are both misstated in the same direction.
Candidates match the words 'paid in advance' and 'owing' to the wrong adjustment because they do not visualise the expense account and what portion belongs to the current period.
What to do instead
For every expense, draw a T-account: opening accrual or prepayment, cash paid, closing accrual or prepayment, and the balancing figure that goes to profit or loss. Remember accruals are liabilities and increase the expense; prepayments are assets and reduce the expense. Cross-check that the profit effect and the statement of financial position effect are opposite in direction.
Building the statement of cash flows from the movement in the bank balance rather than from profit before tax, and classifying interest paid or dividends paid as operating rather than financing outflows.
Candidates take the easy route of listing cash movements from the ledger, which misses non-cash items and misclassifies items; they also rely on memory for classification rather than the standard headings.
What to do instead
Start from profit before tax and adjust for non-cash items (depreciation, profit or loss on disposal, finance cost), then working capital movements, then tax and interest paid. Use three fixed headings: operating, investing and financing. Interest and dividends paid are financing outflows under the convention used in the syllabus; interest received is investing. Reconcile the net movement to opening and closing cash and cash equivalents as a final check.
Computing ratios such as return on capital employed or gearing using inconsistent numerator and denominator, for example profit after tax over total assets, or debt including trade payables.
Candidates learn ratio formulas as isolated fractions without understanding what each measures, so they substitute whichever figures are nearest on the face of the statements.
What to do instead
For each ratio, write what it measures in one sentence before calculating. ROCE: operating profit over capital employed (total assets less current liabilities, or equity plus non-current liabilities). Gearing: non-current liabilities over equity plus non-current liabilities. Use averages only where the question states opening and closing balances and consistency is expected. State units as a percentage or times.
When asked to discuss ethical issues, listing the fundamental principles by name without identifying the specific threat in the scenario, the principle at risk, and the safeguard that should be applied.
Candidates answer from a memorised list and do not apply the framework to the facts given, so the answer is generic and earns few marks for application.
What to do instead
Structure each ethics answer as: identify the threat (self-interest, self-review, advocacy, familiarity, intimidation), name the principle threatened (integrity, objectivity, professional competence and due care, confidentiality, professional behaviour), then state a concrete safeguard such as escalating to the audit committee, declining the engagement, or disclosing the interest and removing yourself from the decision. Tie each point to a named person and fact in the scenario.