NCEA Level 2 Accounting common mistakes
NCEA Level 2 Accounting · Understand the traps and how to avoid them.
When posting to the general journal, the candidate writes 'Debit Bank / Credit Sales' for a cash sale, or reverses the debit and credit on a credit sale, so the entry balances but the account receiving the value is wrong.
Candidates memorise the phrase 'debit the receiver, credit the giver' without connecting it to the accounting equation. They do not check which account increases and whether that increase sits on the debit (asset/expense) or credit (liability/equity/income) side, so the rule is applied mechanically and the direction flips.
What to do instead
Before writing any entry, name the two accounts and classify each as asset, liability, equity, income or expense. Then apply: increases in assets and expenses are debits; increases in liabilities, equity and income are credits. Practise by writing the entry, then testing it against the equation (assets = liabilities + equity) to confirm the balance still holds. For every credit sale, say aloud 'asset up, income up' and check the debit went to Accounts Receivable.
In the bank reconciliation, the candidate treats an unpresented cheque as an adjustment to the bank statement balance when starting from the cash journals, or adds a deposit not yet credited to the wrong side, producing a reconciliation that does not agree.
Candidates learn one direction of the reconciliation (statement balance to cash book balance) and then apply that direction regardless of which figure the question gives as the starting point. They also confuse 'not yet presented' (a timing difference on the bank side) with 'not yet recorded' (an error or missing entry in the cash journals).
What to do instead
Draw two columns labelled 'Bank statement' and 'Cash journals' before writing anything. Place each item in the column of the record that has not yet captured it: unpresented cheques and deposits not yet credited belong to the bank statement column; bank charges, interest, dishonoured cheques and direct credits belong to the cash journals column. Adjust the starting figure only by items in its own column, then confirm both columns reach the same agreed balance.
When preparing a bank reconciliation, the candidate adjusts the cash book balance for unpresented cheques instead of adjusting the bank statement balance, or posts the reconciliation adjustments to the general ledger without updating the cash journals first.
The reconciliation statement and the cash journals look like the same task, so candidates merge them. They forget that items the business has not yet recorded must first be entered in the cash journals and posted to the ledger, and only then will the ledger bank balance match the adjusted cash book figure.
What to do instead
Follow a fixed sequence: (1) update the cash receipts and cash payments journals for items the bank knew about but the business did not; (2) post those to the Bank account in the general ledger; (3) prepare the reconciliation statement using only timing differences. Write the sequence as a checklist at the top of the answer and tick each step. Never put an unpresented cheque into the cash journals, because the business already recorded it.
The candidate records the GST component inside the expense or income figure, for example debiting Rent Expense with the full GST-inclusive amount, so the GST Clearing account never balances and the expense is overstated by the GST portion.
Candidates treat the invoice total as the transaction amount because that is the number on the document. They do not consistently separate the GST-exclusive value from the 15% GST, and they are unsure which direction GST Clearing moves for a purchase (debit) versus a sale (credit).
What to do instead
For every GST transaction, calculate the GST as the GST-inclusive amount multiplied by 3/23 (for 15% GST), record that in GST Clearing, and record the remainder in the income or expense account. State the rule: GST paid on purchases is a debit to GST Clearing; GST charged on sales is a credit. After each entry, check that the GST Clearing balance equals the net GST owing to or from Inland Revenue.
In the depreciation adjustment, the candidate debits the asset account instead of the accumulated depreciation account, or calculates depreciation on the carrying amount rather than on cost, so the asset is understated and the expense is wrong.
Candidates see depreciation as 'the asset losing value' and therefore reduce the asset directly. They also mix up the straight-line and diminishing-value bases, applying the rate to the carrying amount when the policy specifies cost, or forgetting to pro-rate for a partial year.
What to do instead
Memorise the pair: debit Depreciation Expense, credit Accumulated Depreciation. Accumulated Depreciation is a contra-asset shown against the asset in the balance sheet; the asset stays at cost. Read the policy in the question to confirm the basis (cost for straight-line, carrying amount for diminishing value) and the period. Show the working: cost x rate x months/12, and check that the expense flows to the income statement and the accumulated depreciation to the balance sheet.
When preparing the income statement, the candidate includes capital contributions, drawings, loan repayments or asset purchases as income or expense, so the reported profit is inflated or deflated by non-profit items.
Candidates see any cash movement as income or expense. They have not internalised that the income statement reports only income earned and expenses incurred in the period, while capital, drawings, loans and asset purchases are equity, liability or asset movements that belong in the balance sheet or statement of movements in equity.
What to do instead
Before drafting, sort every ledger balance into three piles: income statement (income and expenses), balance sheet (assets, liabilities, equity) and neither (drawings, capital). Test each item with the question 'did this arise from the ordinary earning activity of the business?' If not, keep it out. Cross-check by reconciling the profit figure to the change in equity after allowing for capital contributions and drawings.
In the balance sheet, the candidate lists Accumulated Depreciation as a liability, or places Drawings inside the equity section as a positive addition rather than a deduction, so the statement does not balance.
The word 'accumulated' and the credit balance lead candidates to think of a liability. Drawings are also confused with an expense or treated as part of profit, so the sign is reversed. The underlying cause is not classifying accounts by their nature before placing them.
What to do instead
Build the balance sheet from a classified trial balance: group assets first, then liabilities, then equity. Show Accumulated Depreciation as a deduction from the related asset to give carrying amount, and show Drawings as a deduction from equity. As a final check, confirm total assets equal total liabilities plus equity, and if they do not, find the misclassified item rather than forcing a balancing figure.
The candidate prepares a cash budget by entering the GST-inclusive figures for receipts and payments and then adds a separate GST line, or includes non-cash items such as depreciation and bad debts in the cash budget.
Candidates conflate the cash budget with the income statement and the GST return. They do not distinguish cash timing from accrual timing, so they include items that never move cash and double-count GST that is already embedded in the invoice amounts.
What to do instead
State at the top of the budget whether figures are GST-inclusive or exclusive, and apply that consistently. Exclude depreciation, bad debts written off and other non-cash adjustments entirely. Include only actual receipts and payments in the month they occur, allowing for debtors' and creditors' settlement terms. Reconcile the closing bank balance in the budget to the opening balance plus net cash flow.
In the analysis of financial statements, the candidate calculates a ratio correctly but interprets it in isolation, for example saying 'the current ratio fell, so liquidity is poor' without comparing it to the prior year, a benchmark or the nature of the business.
Candidates treat ratio calculation as the whole task and stop once the number is produced. They have not practised the interpretation step, and they do not link the ratio back to the decisions a user of the report would make.
What to do instead
For every ratio, write three sentences: what the ratio measures, what the movement or comparison shows, and what it means for a specific user (for example a lender assessing repayment capacity). Always compare against the prior period or a stated benchmark, and qualify the conclusion with a reason such as a large inventory build-up or a seasonal peak. Practise by explaining one ratio to a partner without using the word 'good' or 'bad'.
In the internal assessment, the candidate describes the accounting process in general terms ('we recorded the transactions and prepared reports') without linking each step to the specific entity, figures or decisions, so the evidence does not meet the explanatory or justifying level of the standard.
Candidates write from memory of textbook descriptions rather than from the context of their own entity. They do not check the assessment schedule to see whether the task requires explaining, justifying or evaluating, so the depth of response falls short of the higher grade bands.
What to do instead
Before writing, read the assessment schedule and highlight the command words (describe, explain, justify, evaluate). Draft each paragraph with three parts: the specific figure or transaction from the entity, the accounting treatment or ratio, and the consequence or recommendation for the entity. Keep a log of the entity's actual figures so evidence is concrete. Have a peer check that every claim names the entity and a number, and revise any sentence that could apply to any business.