LGCSE Accounting (0187) common mistakes
LGCSE Accounting (0187) · Understand the traps and how to avoid them.
Entering a transaction on the same side of both accounts (e.g. debiting both the bank account and the creditor's account when paying a supplier), or recording a receipt as a credit to bank.
Candidates memorise 'debit the receiver, credit the giver' as a slogan without linking it to the dual effect on the two accounts affected, so they lose track of which account is being increased and which decreased.
What to do instead
Before writing anything, state the two accounts and the nature of each (asset, liability, income, expense), then apply the rule for that class and check that total debits equal total credits for the entry before moving on.
Posting the trial balance difference to a suspense account and leaving it there, or forcing the trial balance to agree by inserting a balancing figure in the wrong account.
Candidates treat 'the trial balance must balance' as the goal rather than a check on arithmetic, and they do not know which errors a trial balance does and does not reveal.
What to do instead
Practise classifying errors: list which of the errors of principle, omission, commission, original entry, reversal, and compensating errors leave the trial balance unbalanced, then for each correction state the journal entry with both the suspense account and the specific account named.
Treating the bank column of the cash book as if it were the bank statement balance, so the bank reconciliation starts from the wrong figure and items are added and subtracted in the wrong direction.
Candidates do not hold a clear model of the cash book as the business's record and the bank statement as the bank's record of the same transactions from the opposite viewpoint.
What to do instead
Write the two balances side by side at the top of every answer, label whose record each is, and for each reconciling item state which balance it adjusts and why (unpresented cheque reduces the cash book relative to the statement, etc.).
Calculating depreciation on the cost of the asset every year regardless of the method stated, or charging a full year's depreciation on an asset bought partway through the year.
Candidates learn one method (usually straight line on cost) as a default and do not re-read the policy in the question, and they overlook the dates in the additional information.
What to do instead
Before calculating, write down the method, the rate, the basis (cost or carrying value), and the dates of acquisition and disposal; then compute for each asset separately showing the months of ownership.
Omitting the closing inventory adjustment from the income statement, or deducting closing inventory from purchases without also adjusting the cost of sales figure.
Candidates treat inventory as a balance sheet item only and do not connect the double entry (debit inventory, credit cost of sales) to both statements.
What to do instead
Always build the cost of sales working explicitly: opening inventory + purchases − returns outward − closing inventory, and cross-check that the same closing inventory figure appears as a current asset in the statement of financial position.
Preparing an appropriation account for a partnership that charges partners' salaries and interest on capital as expenses before arriving at profit, rather than as an appropriation of profit.
Candidates confuse the treatment of partners' salaries with employees' wages and apply the sole trader layout to a partnership.
What to do instead
State the rule at the top of the answer: profit for the year is calculated first, then salaries, interest on capital and interest on drawings are appropriated; residual profit or loss is shared in the profit-sharing ratio.
In a company, listing debenture interest, taxation, and dividends as operating expenses above the profit for the year line, or omitting the transfer to reserves from the retained earnings calculation.
Candidates use a single undifferentiated 'expenses' list and are unsure which items belong to trading, which to finance, and which are appropriations of profit.
What to do instead
Draw the statement of profit or loss as labelled blocks (gross profit, operating profit, finance costs, profit before tax, tax, profit for the year) and keep the retained earnings statement separate, starting from profit for the year and deducting dividends and transfers.
Using the bank balance as the measure of profit, or computing a ratio such as return on capital employed with the wrong numerator or denominator (e.g. using gross profit instead of operating profit, or closing capital instead of capital employed).
Candidates do not distinguish cash flow from profitability and memorise ratio formulae without understanding what each is measuring.
What to do instead
For every ratio, write the formula in words first and define each term from the statement it comes from; when interpreting, state what the ratio shows, compare it with the prior year or a benchmark, and give one plausible business reason for the movement.
Applying the accruals concept inconsistently: recording expenses when paid rather than when incurred, or ignoring prepayments and accruals in both the income statement and the statement of financial position.
Candidates understand the concept in the abstract but do not translate it into the year-end adjustment entries, and they forget that each adjustment affects two figures.
What to do instead
For each year-end item, write the adjusting journal (e.g. debit expense, credit accrual) and then tick that the expense in the income statement and the current asset or liability in the statement of financial position both reflect the adjustment.
Entering items in the sales and purchases accounts when they belong in the returns accounts, or recording a credit note received from a supplier as a debit note, so returns inward and outward are swapped.
Candidates do not distinguish the direction of the return from the perspective of the business (goods returned by a customer versus goods returned to a supplier).
What to do instead
Before recording, ask 'who is returning goods to whom?' and write the answer in the margin; then check returns inward reduce sales and returns outward reduce purchases, and that the customer or supplier account is posted on the opposite side.