WB HS Accountancy common mistakes
WB HS Accountancy · Understand the traps and how to avoid them.
When a new partner is admitted, students record the revaluation of assets and liabilities by debiting or crediting the partners' capital accounts directly, instead of first opening a Revaluation Account and transferring the resulting profit or loss to the old partners in their old profit-sharing ratio.
The chapter on admission is taught immediately after fundamentals, and students carry over the habit of adjusting everything through capital accounts. They also confuse revaluation adjustments with the premium for goodwill, because both involve old partners' capital accounts, so they merge the two entries.
What to do instead
Drill the fixed sequence: (1) pass entries for each asset/liability change through Revaluation A/c, (2) balance the Revaluation A/c, (3) transfer the balance to old partners' capital accounts in the OLD ratio only. Practise a two-column worksheet listing 'item, old value, new value, Revaluation A/c Dr/Cr, partner share' so the two separate flows never get merged.
Students calculate the sacrificing ratio as the new ratio or the old ratio rather than old ratio minus new ratio, and then credit the premium for goodwill to all partners including the new partner.
Sacrificing ratio and gaining ratio are defined by subtraction, but students memorise 'share the goodwill in the old ratio' from the fundamentals chapter and apply it mechanically. The error is invisible when the old ratio happens to equal the sacrifice, so it survives practice.
What to do instead
Always write the sacrifice per partner explicitly: Sacrifice = Old share − New share, computed for each partner before writing any goodwill entry. Test with a case where the ratios differ (e.g., old 3:2:1, new 2:2:1:1) so the subtraction produces a non-obvious answer, and mark the goodwill credit only to partners with a positive sacrifice.
On retirement or death, students compute the retiring partner's share of goodwill using the new ratio or the gaining ratio instead of the gaining ratio applied to the firm's goodwill, and they forget to write off the retiring partner's share of existing goodwill already appearing in the books.
Retirement reverses the admission logic, and students apply the same formula they used for admission without flipping it. The treatment of goodwill already in the books (written off in old ratio at the time of admission) is a separate rule that gets skipped.
What to do instead
Use a two-step checklist: (a) value the retiring/deceased partner's share of goodwill = Firm's goodwill × his old share, debited to gaining partners in their gaining ratio; (b) if goodwill already stands in the books, write it off among all partners in the old ratio first. Practise one numerical where goodwill is already recorded and one where it is not, side by side.
In the retiring partner's loan account, students credit the loan with the capital balance and then continue to pay interest and instalments through the capital account, or they treat the loan as a liability of the firm without interest.
Students treat the loan as an extension of the capital account and do not realise that once the settlement is transferred to the loan account, the partner is no longer a partner and the loan is a firm liability bearing interest under the Partnership Act.
What to do instead
Write the transfer entry explicitly: Retiring Partner's Capital A/c Dr → Retiring Partner's Loan A/c Cr, and close the capital account to nil. Then maintain a separate loan ledger with opening balance, interest accrued at the agreed rate (or 6% p.a. if silent), and instalment repayments, showing the closing balance each year.
In the Realisation Account, students record the sale of assets and payment of liabilities at book value, omit the transfer of cash/bank and the partners' capital balances, and forget to record the actual realisation of assets taken over by a partner.
The Realisation Account is a nominal account that only records actual realisation and settlement, not book values. Students confuse it with the Revaluation Account, which does use book values, and they forget that cash, bank, and capital are excluded from the transfer entry.
What to do instead
Build the Realisation A/c from a fixed template: debit side = all assets at book value (excluding cash, bank, and fictitious assets) plus expenses; credit side = all external liabilities plus provisions plus sale proceeds of assets. Then pass separate entries for assets taken over by a partner (Partner's Capital A/c Dr) and for expenses paid by a partner. Reconcile the final cash/bank balance to zero as a check.
When shares are issued at a premium or forfeited, students credit the full call money to Share Capital and ignore Securities Premium, and on forfeiture they credit the whole amount received to Forfeited Shares A/c without first reversing the premium and without limiting the forfeiture to unpaid amounts.
The Share Capital account is treated as a single bucket for all money received, and the rule that Securities Premium on forfeited shares must be cancelled (debited) is a small, easily missed step. Students also forget that the maximum forfeiture is the amount unpaid, not the amount paid.
What to do instead
Use the standard forfeiture journal in three lines: Share Capital A/c Dr (called-up amount on forfeited shares), To Share Allotment/Calls A/c (unpaid), To Forfeited Shares A/c (balance). If premium was received, first debit Securities Premium A/c for the premium on forfeited shares. Then, on reissue, debit Bank and Forfeited Shares A/c and credit Share Capital at the reissue price, and transfer any surplus in Forfeited Shares A/c to Capital Reserve.
Students prepare the Statement of Profit and Loss in the prescribed Schedule III format but misclassify items: they show interest on borrowings as an operating expense, put 'other income' inside revenue from operations, or omit the separate line for 'revenue from operations' versus 'other income'.
The format is memorised as a list of headings without the classification logic. Students do not distinguish operating from non-operating items, and they are unfamiliar with the mandatory sub-headings (cost of materials consumed, changes in inventories, employee benefit expense, finance costs).
What to do instead
Learn the two-part structure: Revenue from Operations (net of returns) and Other Income at the top; then Expenses grouped under Cost of Materials Consumed, Purchases, Changes in Inventories, Employee Benefit Expense, Finance Costs, Depreciation, and Other Expenses. Classify every item by asking 'does it arise from the main business?' before placing it, and cross-check that Finance Costs are shown separately and never inside Other Expenses.
In ratio analysis, students compute the current ratio by including prepaid expenses or excluding bank overdraft, and they compute stock turnover using closing stock instead of average stock, or use sales instead of cost of goods sold.
The definitions have small qualifiers (quick assets exclude prepaid expenses and stock; average stock is opening plus closing divided by two; turnover uses cost of goods sold) that are lost when students memorise only the formula name.
What to do instead
Write each formula with its exclusions next to it: Current Ratio = Current Assets / Current Liabilities; Quick Ratio = (Current Assets − Stock − Prepaid Expenses) / (Current Liabilities − Bank Overdraft). For Stock Turnover, always compute Average Stock = (Opening + Closing)/2 and use Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses − Closing Stock. Solve one numerical where the two turnover bases give different answers to see why the distinction matters.
In the Cash Flow Statement, students classify interest paid on long-term borrowings as an operating outflow, treat the purchase of fixed assets on credit as a cash outflow, and forget to adjust depreciation and profit on sale of assets in the operating section.
Students follow the indirect method mechanically without understanding that non-cash transactions (credit purchase of assets) never enter the Cash Flow Statement, and that interest on borrowings is a financing outflow under AS-3 for a non-financial enterprise.
What to do instead
Apply three filters before writing any line: (1) did cash actually move? if not, exclude it; (2) is it operating, investing, or financing? interest paid on borrowings → financing, dividend paid → financing, interest received on investments → investing; (3) in the operating section, add back non-cash charges (depreciation, amortisation, provision for tax) and deduct non-operating gains (profit on sale of fixed assets, interest income). Reconcile the net increase in cash with the opening and closing cash and cash equivalents as a final check.
In Not-for-Profit Organisations, students treat the Receipts and Payments Account as if it were the Income and Expenditure Account, mixing capital receipts with revenue income, and they omit adjustments for outstanding subscriptions and subscriptions received in advance.
Both accounts are prepared from the same cash book, and students do not grasp that the Receipts and Payments Account is a summarised cash account covering all receipts and payments (capital and revenue), while the Income and Expenditure Account is the equivalent of the Profit and Loss Account on an accrual basis.
What to do instead
Prepare a subscription working note first: Subscription income = amount received − opening advance − closing outstanding + opening outstanding + closing advance. Then transfer only revenue items to the Income and Expenditure Account and keep capital items (building, furniture, life membership fees, donations for specific purposes) out of it. Check that the surplus/deficit in the Income and Expenditure Account matches the movement in the Accumulated Fund after adjustments.