UPMSP Intermediate Accountancy common mistakes
UPMSP Intermediate Accountancy · Understand the traps and how to avoid them.
When asked to show the effect of a transaction on the accounting equation, candidates add the amount to only one side (e.g., record a credit purchase by increasing stock and ignoring the matching increase in creditors), so assets and liabilities no longer balance.
The equation A = L + C is memorised as a formula to reproduce rather than as a live check on every entry; candidates think of a transaction as a single event instead of a dual-aspect event, and they confuse 'increase' with 'debit'.
What to do instead
For every transaction, force yourself to write all affected elements with signs before writing any number: e.g., 'Stock +, Creditors +' or 'Cash −, Capital −'. Then verify the arithmetic identity after each line. Practise a table with columns Cash + Stock + Furniture = Creditors + Capital + Revenue − Expenses and fill every row until the balance check is automatic.
Candidates classify an item as an asset or expense by its name rather than by its nature - for example, treating a heavy one-off repair that extends the life of machinery as a revenue expense, or capitalising a routine annual servicing cost - and then carry the error into the final accounts and depreciation.
The capital-versus-revenue distinction is taught as a definition rather than as a decision rule, and candidates do not ask the two decisive questions: does it create a future benefit beyond the current period, and does it increase earning capacity?
What to do instead
Apply a fixed test to each doubtful item: (1) benefit consumed within one year → revenue; (2) benefit extends useful life or increases capacity → capital; (3) if both, apportion. Learn the standard borderline cases explicitly: wages paid for installing new machinery (capital), repairs to an old machine (revenue), legal fees on purchase of land (capital), legal fees in a damages suit (revenue).
While preparing final accounts with adjustments, candidates record the adjustment in only one place - e.g., they deduct closing stock from purchases but never show it on the assets side of the balance sheet, or they provide for outstanding wages without adding them to wages in the trading account.
Adjustments are treated as notes to be 'mentioned' rather than as double entries; candidates do not realise each adjustment normally has two effects, one in the trading/profit and loss account and one in the balance sheet.
What to do instead
For each adjustment write a two-line entry in the working note: 'Effect 1: which account, debit or credit, which statement' and 'Effect 2: ...'. Do not proceed until both lines exist. Build a checklist of the standard adjustments (closing stock, outstanding and prepaid expenses, accrued and unearned income, depreciation, bad debts, further bad debts, provision for doubtful debts, drawings of goods, goods on sale-or-return) and tick both effects for each.
Candidates prepare the Trading and Profit and Loss Account without first closing the nominal accounts through the trial balance, so items such as carriage inward, returns, or discount allowed are placed in the wrong statement (carriage inward in P&L instead of Trading, discount received in Trading instead of P&L).
The structure of the two statements is memorised as a list of headings without understanding that the Trading Account ends at gross profit from direct costs, while the P&L Account covers indirect items; candidates also forget that returns inward reduce sales and returns outward reduce purchases.
What to do instead
Before writing anything, sort every trial balance item into three piles: direct/trading, indirect/P&L, and balance sheet. Learn the boundary cases by function, not name: carriage inward is a cost of bringing goods in (Trading), carriage outward is a selling cost (P&L); wages are direct, salaries are indirect; factory rent is direct, office rent is indirect. Then compute gross profit and check it against a rough estimate.
In the Bank Reconciliation Statement, candidates start from the cash book balance when the question gives the pass book balance (or vice versa), and they add when they should subtract - for example, adding cheques deposited but not yet credited, or subtracting bank charges instead of adding them back to the cash book balance.
The signs are memorised as a list instead of being derived from the direction of the reconciliation; candidates also fail to identify which balance (cash book or pass book) is the starting point and whether it is a debit or credit balance.
What to do instead
Write the starting point and its nature at the top: 'Cash book balance (debit = money in bank)'. Then reason item by item from the bank's viewpoint: a cheque deposited but not credited means the bank shows less than the cash book, so when starting from the cash book you add it. Prepare a two-column working table (effect on cash book / effect on pass book) for every item before doing arithmetic, and verify the final figure by re-reconciling in the reverse direction.
Candidates compute depreciation for the year on the closing book value after charging depreciation, or apply the wrong rate basis - using the diminishing balance method when the question specifies straight line, or charging a full year's depreciation on an asset purchased mid-year.
The formula 'cost × rate' is applied mechanically without checking the method stated, and the time factor for additions and disposals during the year is ignored.
What to do instead
For every depreciation question, first write three facts: method (SLM or WDV), rate, and dates of purchase/sale. Then prepare an asset account with columns for date, cost, depreciation for the period, and written-down value. Charge depreciation pro rata from the date of purchase or up to the date of sale unless the question says a full year is charged. Reconcile the closing WDV to cost less accumulated depreciation.
When a bill is discounted with the bank and the acceptor dishonours it, candidates omit the entry for the bank's noting charges and do not reverse the discount, or they fail to record the acceptor's liability correctly - leaving the drawer's books showing the bill as honoured.
The sequence of events (discounting, maturity, dishonour, noting charges, recovery) is memorised as isolated entries rather than as a chain, and candidates do not track who ultimately bears the noting charges.
What to do instead
Draw the life cycle of the bill as a timeline and write the journal entry at each node in both the drawer's and the drawee's books. Learn the rule that noting charges are borne by the party who ultimately pays - the acceptor - so on dishonour the drawer debits the acceptor's account with the bill amount plus noting charges, and reverses the discount previously credited. Practise one full problem from acceptance to settlement for both parties.
In partnership admission and retirement problems, candidates calculate the sacrificing ratio as the old profit-sharing ratio, or they compute the new ratio by simple subtraction without checking that the gaining partners' shares equal the retiring partner's share; goodwill is then adjusted to the wrong accounts.
The relationship between old ratio, new ratio, sacrifice and gain is understood as three unrelated formulas; candidates do not test the arithmetic identity that sacrifice/gain must reconcile.
What to do instead
Always compute: Sacrifice = Old share − New share (for admission) and Gain = New share − Old share (for retirement). Check that total sacrifice equals the incoming partner's share and total gain equals the retiring partner's share. Then route goodwill accordingly: the gaining partners' capital accounts are debited and the sacrificing/retiring partners' accounts credited. Do the reconciliation check before writing any capital account.
On issue of shares, candidates record the full application money as share capital at the application stage, ignore calls in arrears and calls in advance, and do not use the share forfeiture account correctly - for example, crediting the full amount received on forfeited shares to capital reserve instead of only the gain on forfeiture.
The stages of a share issue (application, allotment, first call, final call) are collapsed into one entry, and the distinction between share capital, securities premium, calls in arrears and the forfeiture account is not clear.
What to do instead
Maintain a separate ledger column for each instalment and post application, allotment and call money separately, then transfer to share capital only when the shares are allotted. On forfeiture: debit share capital with the called-up amount, credit the calls-in-arrears account, credit the forfeited shares account with the amount already received, and transfer to capital reserve only the balance remaining in the forfeited shares account after reissue. Reconcile the share capital balance to the number of shares in issue times the paid-up value.
In ratio analysis and the cash flow statement, candidates mix up the numerator and denominator (e.g., using cost of goods sold over average stock for the stock turnover ratio but average stock over cost of goods sold for another), and in the cash flow statement they classify an item in the wrong activity - treating interest paid on a term loan as an operating outflow or dividends paid as an operating outflow.
Ratios are memorised as strings of words without attaching each to its purpose, and the three activity categories are not linked to the underlying cash movement; candidates also forget that non-cash items such as depreciation must be added back to net profit before tax.
What to do instead
For every ratio, write in words what it measures before substituting numbers: 'stock turnover = how many times stock is sold in a year = cost of goods sold ÷ average stock'. For the cash flow statement, build three headers (operating, investing, financing) and place each item by asking 'does this change the long-term asset base or the capital structure?' - if yes it is investing or financing, otherwise operating. Add back depreciation and amortisation as the first adjustment to net profit, and reconcile the closing cash balance to the opening balance plus net cash flow.