SPM Accounting (3756) common mistakes
SPM Accounting (3756) · Understand the traps and how to avoid them.
When balancing off the trial balance, candidates enter a debit balance in the credit column (or vice versa) because they copy the figure from the wrong side of the T-account, or they treat the balance c/d as the closing entry rather than the opening balance b/d.
Candidates memorise 'assets are debit' without understanding that the trial balance column is determined by whether the account carries a debit or credit balance after balancing, and they confuse the balance carried down (the balancing figure) with the balance brought down (the opening balance).
What to do instead
For every ledger account, write the larger side total, insert the balancing figure on the smaller side, label it 'balance c/d', then bring it down on the opposite side as 'balance b/d'. Extract the trial balance strictly from the b/d side, and check that total debits equal total credits before moving on.
Candidates post the bank column of the cash book as a single net figure, or reverse the treatment of a credit bank balance, so the cash book and the bank statement never reconcile and the overdraft is shown as a positive asset.
The two-column cash book is treated as one account, and candidates do not grasp that the bank column is a mirror of the bank's records: a debit in the cash book is money the bank owes the business, while a credit balance is an overdraft shown in brackets on the balance sheet.
What to do instead
Treat the bank column as its own account with its own balance. Practise stating, for each transaction, what the business's records say and what the bank's records say. Always label an overdraft as a credit balance in the cash book and present it as a current liability, and reconcile the closing cash book balance to the statement line by line.
When preparing a bank reconciliation, candidates adjust the cash book for items such as unpresented cheques and lodgements not yet credited, or they adjust the bank statement for standing orders and direct debits.
Candidates learn the list of reconciling items by rote and never classify them by which set of records already contains them, so they apply every item to whichever document they happen to be working on.
What to do instead
Before writing anything, sort each item into 'already in cash book, not in bank statement' (unpresented cheques, uncredited lodgements, bank errors) and 'already in bank statement, not in cash book' (standing orders, direct debits, bank charges, interest, dishonoured cheques, errors by the business). Adjust only the cash book for the second group; use the first group in the reconciliation statement.
In the correction of errors, candidates correct an error of principle or a complete reversal by posting the same journal entry twice, or they clear the suspense account with a single entry instead of a double entry.
Candidates do not distinguish errors that affect the trial balance agreement (one-sided, or unequal debits and credits) from errors that do not (errors of principle, omission, commission, original entry, reversal, compensating errors), so they reach for the suspense account for every error.
What to do instead
Classify each error first: does it leave debits unequal to credits? Only then does suspense arise. For each correction write the full journal with named accounts and amounts, and only touch the suspense account for the amount by which the trial balance failed to agree. Check that the suspense balance clears to nil once all one-sided errors are corrected.
Candidates treat the purchase of a non-current asset as a revenue expense in the income statement, or they charge a full year of depreciation in the year of acquisition and none in the year of disposal regardless of the policy stated.
The distinction between capital and revenue expenditure is applied mechanically, and depreciation is calculated without reference to the dates and policy given in the question, so the asset register and the income statement disagree.
What to do instead
Ask whether the spend creates a benefit beyond the current period; if so, capitalise it. For each asset, compute depreciation from the date of acquisition or disposal using the stated policy (straight line or reducing balance, full year or pro rata), and keep a working showing cost, accumulated depreciation, charge for the year, and disposal proceeds so the gain or loss on disposal is derived, not guessed.
In the year-end adjustments, candidates post accruals and prepayments to the wrong side of the income statement, or they omit the opening accrual or prepayment when computing the expense for the year.
The matching concept is understood in words but not in double entry, and candidates forget that last year's accrual becomes this year's payment and last year's prepayment becomes this year's expense, so the charge is overstated or understated.
What to do instead
Use a three-line working for every adjusted expense: expense paid during the year, add closing accrual, less opening accrual (and the reverse for prepayments). Then post the closing accrual or prepayment to the balance sheet as a current liability or current asset, and verify that the expense in the income statement equals the amount actually relating to the period.
Candidates write off a bad debt by debiting the income statement directly, or they create a provision for doubtful debts on the full receivables figure without deducting the bad debt written off and without adjusting for the opening provision.
The distinction between a bad debt (specific, known irrecoverable) and a provision (an estimate) is blurred, and candidates forget that only the movement in the provision, not the whole provision, is charged to the income statement.
What to do instead
Write off bad debts as debit bad debts expense, credit receivables. Then compute the required provision on the remaining receivables at the stated percentage, and charge or credit only the difference between the opening and closing provision. Recoveries of previously written-off debts are credited to bad debts recovered, not to sales.
When preparing the financial statements of a sole proprietor, candidates put the drawings or the capital introduced inside the income statement, or they omit closing inventory, accruals and depreciation from the statement of financial position because those figures were already used in the income statement.
Candidates treat the income statement and statement of financial position as two separate exercises rather than one linked set, and they do not trace each adjustment to both statements.
What to do instead
Build the income statement first, ending at net profit, then carry that figure into the capital section of the statement of financial position. Show capital plus net profit less drawings as closing capital, and list every adjusted balance (inventory, accruals, prepayments, accumulated depreciation, net book value) on the correct side. Reconcile total assets to capital plus liabilities as a final check.
In partnership accounts, candidates split the whole profit on the profit-sharing ratio without first deducting interest on capital and partners' salaries, or they omit the current account and post drawings directly against capital.
The appropriation sequence is learned as a list rather than as an order of operations, and the distinction between the capital account (fixed, long-term) and the current account (fluctuating, for profit share, drawings, interest and salaries) is not secure.
What to do instead
Appropriate in strict order: net profit, less interest on capital, less partners' salaries, less interest on drawings, then divide the residual in the profit-sharing ratio. Post each partner's share, drawings and interest to that partner's current account, and keep capital accounts static unless there is a permanent introduction or withdrawal of capital.
In company accounts and ratio analysis, candidates record the issue of shares at nominal value only and ignore the share premium, or they compute ratios from the wrong base, such as using profit before interest and tax for return on equity or using closing rather than average figures where the question specifies otherwise.
The share capital and reserves section of a company statement of financial position is treated as one line, and ratios are memorised as formulas without checking which profit figure and which balance sheet figure the definition requires.
What to do instead
Record share issues as debit bank, credit share capital at nominal value, credit share premium with the excess; treat the premium as a non-distributable reserve. For each ratio, write the definition you are using (for example, return on capital employed equals operating profit divided by capital employed), state the figures substituted, and keep the units and percentages consistent throughout.