EGEL Plus CNI common mistakes
EGEL Plus CNI · Understand the traps and how to avoid them.
Recording a purchase of inventory on credit by increasing the expense account immediately instead of debiting inventory, so cost of sales is overstated in the period of purchase and understated when the goods are sold.
Candidates carry over the intuition that 'buying something = expense' and skip the accrual logic that inventory is an asset until consumed; the cash-outflow framing dominates their thinking.
What to do instead
Before journalizing, ask 'has the economic benefit been consumed yet?' If not, debit the asset (inventory/prepaid/fixed asset). Practice by re-journalizing the same transaction under cash basis vs accrual basis and comparing the resulting income statement.
Preparing a bank reconciliation that forces the book balance to equal the bank balance by plugging the difference into 'other adjustments', instead of separately listing outstanding checks, deposits in transit, bank fees and errors.
Candidates want a balanced, tidy reconciliation and treat the plug as the goal rather than as a red flag; they also confuse which items adjust the bank side versus the book side.
What to do instead
Memorize the two-column structure: items known to the bank but not the books (fees, interest, NSF, errors) adjust the book side; items known to the books but not the bank (outstanding checks, deposits in transit) adjust the bank side. Any unexplained residual must be investigated, never plugged.
Computing depreciation or amortization for a partial year as if the asset were held for the full year, ignoring the mid-year acquisition date and the convention stated in the problem.
Candidates anchor on the annual formula and skip the time-proportioning step, especially under time pressure where the acquisition date feels like narrative detail.
What to do instead
Make 'months in service' an explicit line in every depreciation computation (cost minus residual, divided by useful life, times months/12). Write the date arithmetic down before touching the formula.
Answering a working-capital or liquidity question by using the current ratio when the question asks about the ability to pay immediate obligations, or by treating inventory as liquid in an acid-test calculation.
Candidates pattern-match 'liquidity' to the first ratio they memorized and do not check which asset set the question specifies.
What to do instead
Build a one-page ratio map: current ratio (all current assets), quick/acid-test (excludes inventory and prepaids), cash ratio (cash plus marketable securities only). Read the question for the asset set it names before selecting the ratio.
Discounting a project's cash flows at the cost of debt instead of the weighted average cost of capital, or mixing nominal cash flows with a real discount rate, when evaluating an investment.
Candidates grab the most visible interest rate in the prompt and do not check whether the rate and the cash flows are on the same basis (nominal/real, pre-tax/post-tax).
What to do instead
Before discounting, state three things in writing: the rate's basis (WACC vs cost of equity vs cost of debt), whether it is after-tax, and whether cash flows are nominal or real. Match them explicitly; convert one side if they differ.
Treating a mixed cost as purely variable when building a flexible budget, so the budget at a different activity level is overstated or understated by the fixed component.
Candidates apply a single unit rate to all costs because it is arithmetically simple, and they do not separate the fixed and variable portions using the high-low method or the cost formula given.
What to do instead
Always decompose mixed costs into fixed plus variable-per-unit before flexing. Practice: given total cost at two activity levels, derive the variable rate and fixed component, then rebuild the budget at the target volume and check the fixed part did not move.
Computing a sales or production budget without first adjusting for desired ending inventory and beginning inventory, so production is set equal to sales and inventory policy is ignored.
Candidates chain budgets from the top line mechanically and forget that the production budget must satisfy sales plus ending inventory minus beginning inventory.
What to do instead
Use the formula explicitly every time: Production = Sales + Desired ending inventory - Beginning inventory. Write the three components as separate lines before summing, and sanity-check that a growing company produces more than it sells.
Calculating VAT or income tax on the gross amount including VAT, or applying the wrong rate base, when the problem gives a price 'including tax' and asks for the tax to be separated.
Candidates default to multiplying by the rate without checking whether the figure already contains the tax, and they do not distinguish the tax base from the total cash amount.
What to do instead
First classify the amount: is it tax-exclusive (multiply by rate) or tax-inclusive (divide by one plus rate, then subtract)? State the base explicitly in each calculation and verify that base plus tax equals the total given.
Classifying an employment relationship or a payment as exempt from social security or withholding based on the label used in the contract rather than on the substantive nature of the payment and the legal criteria.
Candidates rely on the terminology in the prompt (honorarios, outsourcing, temporary) as if the label determined tax treatment, ignoring substance-over-form rules.
What to do instead
For each payment, test the legal criteria explicitly: subordination, schedule control, economic dependence, and whether the item appears in the law's exhaustive list of exempt income. If the facts show an employment relationship, the label does not save the treatment.
Approving an IT or internal-control recommendation based only on the vendor's or the audited area's assertion, without independent evidence of the control's operating effectiveness over the period.
Candidates conflate 'the control is documented' or 'management says it works' with 'the control operated effectively', and they underweight the need for testing evidence.
What to do instead
Separate design from operating effectiveness: require evidence of the control being performed (samples, logs, sign-offs) across the period, not just a policy document. When evidence is missing, conclude 'cannot rely' rather than assuming effectiveness.