ICAEW ACA Accounting (ICAEW) common mistakes
ICAEW ACA Accounting · Understand the traps and how to avoid them.
Recording a cash sale or purchase in the sales/purchase ledger control account and then also posting it to the individual receivables or payables ledger, so the control account balance no longer equals the sum of the ledger balances.
Candidates learn double entry for credit transactions and mechanically apply the same two-line entry to cash transactions, forgetting that the control account reconciles the total of the individual ledger accounts and that cash transactions usually bypass the individual ledger entirely.
What to do instead
Before writing any entry, classify the transaction as credit or cash. For cash transactions, debit/credit bank and the sales or purchases account directly, and only touch the control account where the individual ledger is genuinely affected. At the end of every practice question, prove the control account against the list of balances as a habit, and investigate any difference rather than accepting it.
Producing a trial balance that still balances after an error of principle, an error of omission, a compensating error, or a reversed entry, and then concluding no adjustment is needed.
Candidates equate a balanced trial balance with correct accounting, so they stop looking for errors that are not detected by extraction of a trial balance. The distinction between errors that affect and do not affect the trial balance is examined but often learned as a list rather than applied.
What to do instead
Memorise the classification by mechanism, not by rote: ask whether the two sides of the entry are equal and on the correct sides. Errors of principle, omission, commission, original entry, reversal and compensating errors leave the trial balance agreeing; single-sided, transposition and addition errors do not. Practise by writing the wrong journal and the correct journal side by side and ticking whether each side nets to zero.
Preparing a bank reconciliation by adjusting the cash book for unpresented cheques and outstanding lodgements, and adjusting the bank statement for items already in the cash book.
The two records look symmetrical, so candidates apply corrections to whichever document is in front of them rather than deciding which record is wrong. Timing differences and genuine errors are conflated.
What to do instead
State the rule explicitly before starting: items on the bank statement not yet in the cash book (bank charges, interest, standing orders, dishonoured cheques, direct credits) are corrected in the cash book; items in the cash book not yet on the statement (unpresented cheques, uncredited lodgements) are reconciling items in the statement reconciliation. Then work one direction only and check the reconciled balance equals the statement balance.
Calculating depreciation on the cost of a non-current asset for the full year in the year of acquisition or disposal, and failing to charge depreciation up to the date of disposal.
Candidates default to a full-year charge because most practice figures are annual, and they treat disposal as removing the asset from the register without considering the part-year charge. The pro-rata convention is easy to overlook under time pressure.
What to do instead
Adopt a fixed routine for every non-current asset question: establish the policy (monthly or full-year in year of acquisition), compute the charge for the exact number of months held, post it before calculating the profit or loss on disposal, and remove both cost and accumulated depreciation from the register. Show the disposal account workings in full so the examiner can see the part-year charge.
Treating an item as a liability when it is a provision, or as a provision when it fails the recognition criteria, and then double counting it against a contingent liability disclosure.
The definitions of provision, contingent liability and contingent asset overlap in everyday language, and candidates rely on the word used in the scenario rather than testing present obligation, probable outflow and reliable estimate.
What to do instead
Apply a three-question test in order: is there a present obligation from a past event, is an outflow probable, can it be measured reliably? All three yes means recognise a provision; probable but not reliably measurable, or possible, means disclose a contingent liability; remote means neither. For contingent assets, recognise only when virtually certain and disclose when probable. Write the test out at the top of the answer before reading the figures.
Preparing a statement of cash flows that starts from profit before tax and then fails to remove the tax paid, interest paid and depreciation consistently, or classifies interest paid and dividends paid in the wrong section.
Candidates mix the indirect method adjustments with the direct method and are unsure whether the reconciliation starts from profit before or after tax. Classification of interest and dividends under the chosen framework is a frequent blind spot.
What to do instead
Fix the starting point (profit before tax for a reconciliation that then shows tax paid and interest paid separately) and build a standard proforma: operating profit adjustments, working capital movements, then interest and tax paid, then investing, then financing. Learn the permitted classifications for interest paid, interest received and dividends paid under the framework being examined, and label each line with its section before inserting numbers.
Incomplete or unbalanced double entry: debiting an asset and crediting the bank without recording the corresponding liability, or posting only one side of an accrual, leaving the trial balance out of balance by a figure the candidate then plugs.
Candidates work transaction by transaction without maintaining the accounting equation in view, and under exam pressure they post the obvious side and move on. Plugging a difference hides the real error.
What to do instead
For each transaction, name the two (or more) accounts and the direction before writing figures, and check that debits equal credits for that transaction alone. Never insert a suspense or balancing figure without a written explanation. If the trial balance does not agree, compute the difference, test whether it is divisible by 2 (one-sided entry) or 9 (transposition), and locate the error rather than forcing agreement.
Valuing inventory at the higher of cost and net realisable value, or including administration and selling overheads in the cost of production inventory.
Candidates confuse the prudence rule with the revaluation rule for non-current assets, and they include all overheads because the absorption costing question gave them a total overhead figure.
What to do instead
State the rule as lower of cost and net realisable value, applied item by item, and define cost as purchase cost plus conversion costs only, excluding abnormal losses, storage and selling and administration overheads. In absorption questions, separate production overheads from non-production overheads before absorbing, and show the NRV comparison line by line so the write-down is visible.
Preparing a consolidated statement of financial position by adding the parent and subsidiary line by line without eliminating the investment, the intra-group balances, the intra-group trading and the unrealised profit in inventory.
Candidates treat consolidation as arithmetic aggregation and forget that the group is a single reporting entity, so intra-group effects must disappear. Unrealised profit in inventory is especially missed because the adjustment is indirect.
What to do instead
Work a fixed consolidation schedule every time: share capital and reserves of parent, then subsidiary share capital and pre- and post-acquisition reserves split by the ownership percentage, then goodwill, then adjustments for intra-group receivables and payables, intra-group sales and purchases, and unrealised profit (tax-adjusted where relevant). Tick off each elimination on a checklist before totalling.
Failing to adjust the figures in a ratios or interpretation question to a comparable basis, then drawing a firm conclusion from non-comparable numbers, or calculating a ratio with the wrong numerator or denominator.
Candidates compute ratios mechanically from the face of the financial statements without checking for a change in accounting policy, a one-off item, a part-year acquisition or a different year-end, and they learn ratio formulas without the underlying logic.
What to do instead
Before computing, list any comparability issues in the scenario and adjust or explicitly caveat them. Learn each ratio with its logic (for example return on capital employed uses operating profit and capital employed excluding current liabilities) and sanity-check the result against the components. In interpretation answers, state the calculation, the direction of change, the likely cause and the limitation, rather than asserting a conclusion from a single ratio.