MATSEC IM Accounting common mistakes
MATSEC IM Accounting · Understand the traps and how to avoid them.
Recording a credit sale by debiting the sales account and crediting the receivables (debtors) control account, effectively reversing the direction of the double entry.
Candidates memorise "sales goes to the credit side" without anchoring the entry to the accounting equation; under exam pressure they write the credit column first and then force the debit to balance, producing a reversed entry that still appears to balance.
What to do instead
Before writing any entry, state the two effects aloud in the form "asset up / income up". For a credit sale: receivables (asset) increases, so debit the receivables control account; sales (income) increases, so credit sales. Practise ten source documents (invoice, credit note, till roll) and write the debit line first every time, then derive the credit line.
Treating the purchase of a non-current asset as a business expense in the income statement, or posting it to the purchases account.
The cash leaves the bank in one lump sum exactly like a payment for goods, and candidates match the entry to the bank statement rather than to the nature of the item; the distinction between capital and revenue expenditure is often learned as a definition rather than as a posting rule.
What to do instead
Apply a two-question test to every payment: will the benefit last beyond one accounting period, and does it increase earning capacity rather than maintain it? If yes, debit the asset account and record depreciation separately. Build a one-page table of borderline items (installation costs, delivery of machinery, repairs, extension of a building, replacement of a broken window) and classify each with a reason.
Preparing a bank reconciliation by forcing the cash book balance to equal the bank statement balance, for example by entering unpresented cheques into the cash book.
Candidates see two different figures and assume the cash book must be wrong; they do not distinguish items that require a cash book adjustment (bank charges, direct debits, standing orders, dishonoured cheques, interest) from timing differences that appear only in the reconciliation (unpresented cheques, lodgements not yet credited).
What to do instead
Use a fixed layout: an updated cash book starting from the bank column balance and adjusting only for items the bank has already processed, then a reconciliation statement starting from the bank statement balance and adjusting only for timing differences. Label each item "cash book" or "reconciliation" before writing a figure, and check that the two final balances agree.
Omitting the correction of opening or closing figures when preparing a suspense account or a correction-of-errors question, so the suspense balance is calculated but the individual ledger accounts are never corrected.
The question asks for "the journal entries to correct the errors", and candidates stop once they have found the difference on the suspense account, treating the numerical answer as the whole task; they also fail to decide which errors affect the suspense account at all.
What to do instead
For each error, write three things: the entry actually made, the entry that should have been made, and the correcting journal. Then state explicitly whether the error affected the trial balance (one-sided or unequal entry) or not (errors of principle, commission, original entry, reversal, omission, compensating). Only suspense-affecting errors move the suspense account.
Calculating depreciation on the full cost of an asset in the year of disposal, or charging a full year in the year of acquisition, ignoring the stated policy.
Candidates apply the percentage mechanically to the cost figure in the trial balance and forget that the asset was sold part-way through the year; the disposal account and the accumulated depreciation brought forward are treated as separate topics rather than one continuous calculation.
What to do instead
Draw a timeline for each asset showing acquisition date, year-end dates and disposal date, and mark the months of ownership. Compute depreciation only for those months under the stated policy, then post: debit disposal account with accumulated depreciation, credit disposal account with proceeds, and take the balancing figure to the income statement as profit or loss on disposal.
Producing a manufacturing account or cost statement that mixes period costs with product costs, for example including office salaries and selling expenses in the prime cost or factory overhead.
All expenses appear in one list in the trial balance and candidates allocate by order of appearance rather than by function; the distinction between direct costs, production overheads and non-production overheads is understood in theory but not applied when sorting the list.
What to do instead
Before calculating, sort every expense into three columns headed direct, factory overhead and non-production, and justify each placement in one word (for example "machine" or "admin"). Then build the statement in the fixed order: prime cost, plus factory overheads, plus work-in-progress adjustment, equals cost of production; non-production costs go only to the income statement.
Reconciling profit to cash by starting with the wrong figure or by adjusting profit for non-cash items in the wrong direction, such as deducting an increase in payables.
Candidates learn the reconciliation as a list of adjustments without a rule for direction; the logic that an increase in a liability is a source of cash, while an increase in an asset uses cash, is easily inverted under time pressure.
What to do instead
Use a direction rule written at the top of the answer: add increases in liabilities and decreases in assets, deduct decreases in liabilities and increases in assets. Start from operating profit before tax and interest, add back depreciation and loss on disposal, deduct profit on disposal, then adjust for working capital movements. Cross-check the final figure against the movement in the bank balance plus or minus other cash items.
Computing ratios from inconsistent figures, for example using closing inventory in the inventory turnover ratio while using cost of sales that reflects average inventory, or mixing a balance sheet figure at one date with an income statement figure for a different period.
Formulae are memorised without attention to which figures are point-in-time and which are period flows; candidates also use sales instead of cost of sales in inventory turnover because sales is the more prominent number.
What to do instead
State the formula with its inputs before substituting: inventory turnover uses cost of sales divided by average inventory, and receivables days use average receivables. Where only closing figures are available, say so in one line and use them consistently across all ratios. Keep a single workings sheet so the same figure is never taken from two different places.
Answering an interpretation question with a list of ratio values and no comparison, cause or conclusion, or stating that a ratio "is good" without a benchmark.
Candidates treat interpretation as a calculation task and stop when the arithmetic is finished; they have not practised linking a change in a ratio to a business cause and to a consequence for a named user such as a bank or a supplier.
What to do instead
For each ratio write three sentences: what it is, how it changed against the prior year or a comparator, and why that matters to a specified user. Use the pattern "gross margin fell from X to Y, probably because of discounting to defend market share, which reduces the buffer available to cover overheads". Aim for a small number of fully explained ratios rather than every ratio calculated.
Ignoring the requirement wording in cost questions, for example giving total cost when marginal cost per unit was asked, or failing to separate fixed and variable elements before applying marginal costing.
Candidates recognise a familiar scenario and reproduce a memorised layout; they do not underline the command word and the cost object, and they skip the high-low or account-analysis step that splits semi-variable costs.
What to do instead
Underline the command word and the cost object in the question before starting. If semi-variable costs appear, split them first using the high-low method across the highest and lowest activity levels, state the variable rate and fixed element explicitly, and only then prepare the statement in the requested format, reconciling marginal costing profit to absorption costing profit through the fixed overhead in inventory change.