MATSEC SEC Accounting common mistakes
MATSEC SEC Accounting · Understand the traps and how to avoid them.
Recording a credit sale by debiting the bank account and crediting sales, then leaving the trade receivable out of the double entry entirely.
Candidates conflate 'the customer will pay' with 'the customer has paid', because the cash and credit cycles are learned side by side and the timing difference between sale and settlement is not anchored to the receivable control account.
What to do instead
Before writing any entry, state the two accounts affected and the direction of each: debit trade receivables, credit sales; only when cash is received debit bank and credit trade receivables. Drill five sale-and-settlement cycles in one ledger, posting each side separately, and check after every question that the receivables control account balance equals the sum of individual customer balances.
Treating a bank overdraft as a debit balance in the cash book and as a current asset in the statement of financial position.
The cash book is a debit-balance account in the candidate's mind, so a credit balance feels like an error to be 'corrected' rather than a genuine overdraft, and the same reflex carries into the statement of financial position classification.
What to do instead
Learn the rule explicitly: a debit balance in the cash book is money in the bank (asset); a credit balance is an overdraft (current liability). On every bank reconciliation, write the words 'overdraft' or 'favourable' next to the balance before starting adjustments, and present overdrafts within current liabilities, never netted against receivables.
Preparing a bank reconciliation by altering the cash book for unpresented cheques and lodgements not yet credited.
Candidates see two lists of differences and assume both belong in the same place; they do not distinguish items the business has recorded but the bank has not (timing differences) from items the bank has recorded but the business has not (errors or omissions to correct in the cash book).
What to do instead
Sort every reconciling item into one of two columns headed 'adjust cash book' and 'adjust bank statement only'. Unpresented cheques, outstanding lodgements and bank errors go in the second column; bank charges, interest, standing orders, direct debits and dishonoured cheques go in the first. Then reconcile from the corrected cash book balance to the bank statement balance and prove the arithmetic backwards.
Omitting the year-end adjustment for accrued and prepaid expenses or income received in advance, so profit is stated on a cash basis rather than an accruals basis.
The trial balance already contains the cash paid or received, so the figures look complete; candidates do not automatically ask which amounts relate to the current period and which to the next.
What to do instead
At the start of every final-accounts question, list the four adjustment types (accrued expense, prepaid expense, accrued income, income in advance) and test each expense and income line against them. Post each adjustment as a double entry to the expense or income account and to accruals or prepayments, then carry the closing accrual or prepayment into current liabilities or current assets.
Calculating depreciation on the cost of a non-current asset every year regardless of the method stated, and ignoring the disposal of an asset during the year.
The straight-line formula is over-learned and applied mechanically; candidates also forget that a disposal account must be opened to remove both cost and accumulated depreciation before any profit or loss on disposal can be found.
What to do instead
Read the policy sentence first and write the method and rate at the top of the answer. For a disposal, work through four steps in order: transfer cost out of the asset account, transfer accumulated depreciation out, record sale proceeds, and balance the disposal account to profit or loss. Charge depreciation only for the months the asset was held, and show the workings so a marker can follow them.
Producing a statement of financial position that does not balance because the profit for the year was never transferred to capital, or drawings were deducted from profit instead of from capital.
The extended trial balance is treated as the answer rather than as a working paper, and the link between the income statement and the capital section of the statement of financial position is not rehearsed enough to become automatic.
What to do instead
Always prepare a capital account working: opening capital, add profit for the year, less drawings, equals closing capital. Insert that single figure into the statement of financial position and total both sides before moving on. If the statement does not balance, recheck the capital working first, then look for a one-sided posting in the adjustments.
Classifying an item as product cost or period cost by its name rather than by its behaviour, for example treating factory rent as a period cost or treating depreciation of delivery vehicles as a product cost.
Candidates memorise lists of example costs instead of applying the test of whether the cost is incurred in bringing the product to its present location and condition, so unfamiliar examples in the question are misclassified.
What to do instead
Apply one test to every cost: does it arise in making or bringing the product to saleable condition? If yes it is a product cost and belongs in cost of production; if it relates to selling, distribution or administration it is a period cost and is written off. For each item, write a one-line justification next to it so the reasoning is visible and checkable.
Calculating overhead absorption using actual labour hours or actual overheads when the question specifies a predetermined absorption rate based on budgeted figures, and then failing to deal with the resulting over- or under-absorption.
The word 'actual' appears throughout the ledger data, so candidates reach for the figures nearest to hand; the purpose of a predetermined rate, which is to absorb overhead as production occurs rather than after the year end, is not understood.
What to do instead
Compute the rate as budgeted overhead divided by budgeted activity, state the basis (labour hours, machine hours or labour cost) in the answer, and apply it to actual activity. Then compare overhead absorbed with overhead incurred and label the difference over-absorbed (credit to cost of sales) or under-absorbed (debit to cost of sales). Show the rate and the absorbed amount as separate lines of working.
Calculating a ratio correctly but then interpreting it with no comparison, for example stating that a gross margin of 30 per cent is good without referring to the prior year, a competitor, or the industry.
The arithmetic is the part candidates practise, while the interpretation sentence is written as an afterthought; without a benchmark the number has no meaning and the answer earns no analysis marks.
What to do instead
Structure every interpretation as three sentences: the figure and its direction of change, the benchmark it is being compared with (prior year, budget or industry), and a plausible business reason plus a consequence for the reader. Practise by writing the interpretation before the calculation, then checking that the numbers support the claim made.
Describing a movement in the current ratio as automatically good or bad without considering what caused it, such as a large increase in inventory or a fall in the cash balance.
Candidates learn 'higher is safer' as a slogan and do not connect liquidity ratios to the composition of working capital, so a ratio that looks healthy is praised even when it is driven by unsold stock or slow receivables.
What to do instead
Decompose the ratio before judging it: calculate receivables days, inventory days and payables days, and state which component moved. Judge liquidity only after checking the quality of the current assets. Where the question supplies a bank overdraft, remember it sits in current liabilities and its movement alone can distort the ratio.