ICAP PRC-1 Fundamentals of Accounting common mistakes
ICAP PRC-1 Fundamentals of Accounting · Understand the traps and how to avoid them.
When asked which qualitative characteristic is breached, candidates pick 'relevance' or 'understandability' for every scenario instead of matching the specific defect described in the stem.
The Conceptual Framework characteristics are memorised as a list rather than as distinct tests; candidates do not ask 'what exactly is wrong here?' (outdated = relevance; missing disclosure of a material item = completeness; inconsistent measurement methods = comparability; excessive aggregation = understandability).
What to do instead
Before choosing, restate the defect in one phrase and map it to a single characteristic: 'information is too old' → relevance; 'two years measured differently' → comparability; 'lumped into one line' → understandability; 'omitted a material liability' → completeness/faithful representation. Practise 20 short scenarios and write the defect phrase next to each answer.
In the accounting cycle, candidates post the wrong side of a transaction (e.g. debiting the bank when cash is received) or reverse the direction of an entry for expenses paid in advance.
They memorise 'debit the receiver, credit the giver' style rules without anchoring to the effect on the statement of financial position; when the transaction is unfamiliar they guess the side.
What to do instead
Use a fixed two-step check on every entry: (1) identify which account increases and which decreases; (2) apply the rule that assets/expenses increase with debits while liabilities/equity/income increase with credits. Rehearse with a table of ten transactions and write both the entry and the resulting effect on net assets before checking the answer.
Candidates treat the trial balance as proof that the ledger is correct, and therefore fail to identify errors that still allow it to balance (omission, commission, principle, original entry, compensating errors, reversal of entries).
The trial balance only tests the arithmetic equality of debits and credits, but candidates conflate 'balances' with 'accurate'. The classic exam item asks which error would NOT be revealed, and they pick the wrong one.
What to do instead
Learn the list of errors not disclosed by a trial balance as a checklist (omission, commission, principle, original entry, compensating, complete reversal) and, for each, write a one-line example entry. For any 'which error is not revealed' question, test each option by asking: does this change the total of one side only? If not, the trial balance still balances.
When preparing the bank reconciliation, candidates adjust the cash book for items that belong only in the bank statement reconciliation (or vice versa), for example adding unpresented cheques to the cash book balance.
The two-column layout is memorised visually, but the underlying logic - the cash book must be corrected for items the business has not yet recorded (bank charges, interest, direct debits, standing orders, dishonoured cheques, errors by the business) while timing differences and bank errors are handled in the reconciliation statement - is not internalised.
What to do instead
Write the rule at the top of every answer: 'Cash book = items the bank knows but we don't; reconciliation = items we know but the bank doesn't, plus bank errors.' Classify each item into one of those two buckets before doing any arithmetic, and reconcile the adjusted cash book balance to the statement balance as a final check.
In control account questions, candidates enter contra items, discount allowed/received, or returns on the wrong side of the sales or purchase ledger control account.
The control account mirrors the total of the individual ledger accounts but candidates do not connect the direction to the underlying subsidiary ledger effect, so contra set-offs and credit notes are guessed.
What to do instead
Build the control account from the individual ledger perspective: a credit sale increases receivables (debit control), a credit note reduces them (credit control), a contra between receivables and payables reduces both (credit receivables control, debit payables control). Do three full reconciliations between the control account balance and the list of balances, including at least one contra and one bad debt written off.
For inventory, candidates apply the lower of cost and net realisable value to the total inventory figure rather than item by item, or forget to remove goods on sale or return and goods in transit from closing inventory.
The rule is stated in one line but the application detail (item-by-item, ownership/risks and rewards, NRV = estimated selling price less costs to complete and sell) is skipped; candidates also carry opening inventory into the closing figure.
What to do instead
Always lay inventory out as a table with columns for cost, NRV and lower of the two, then total the lower column. Before that, list goods in transit, sale-or-return and consignment items and decide ownership explicitly. Practise a question with three product lines where one has NRV below cost and one is above.
On depreciation and disposals, candidates calculate depreciation for the year of acquisition or disposal for a full year, or post the disposal proceeds to the wrong account and omit the profit/loss on disposal from the income statement.
They apply the annual rate without checking the ownership period, and they treat the disposal as a single journal instead of the four-step sequence (transfer cost, transfer accumulated depreciation, record proceeds, balance to profit or loss).
What to do instead
Use a standard four-line disposal working every time: cost out of asset account, accumulated depreciation out, proceeds in, balancing figure = gain/loss. Prorate depreciation by months owned unless the question states a policy of full-year charging. Do one question with a mid-year disposal and a revaluation to test both.
When adjusting for accruals and prepayments, candidates adjust the expense in the income statement but forget to carry the corresponding accrual or prepayment into the statement of financial position, or they double-count the opening accrual.
The adjustment is treated as a one-sided correction; candidates do not link the income statement effect to the closing balance sheet position, and they confuse the opening accrual (already paid this year) with the closing accrual (still owing).
What to do instead
For every adjustment, write the double entry in full before touching the statements: Dr expense / Cr accrual, or Dr prepayment / Cr expense. Then build a small working: opening balance + cash paid − closing balance = expense for the year. Apply the same working to prepayments and check that the closing accrual or prepayment appears in current liabilities or current assets.
In partnership questions, candidates allocate profit using the old profit-sharing ratio after a change in partners, or omit interest on capital and partners' salaries from the appropriation account.
The appropriation account is treated as a single profit split rather than a sequence: profit for the year, less salaries, less interest on capital, residual shared in the profit-sharing ratio, with drawings charged against the current account.
What to do instead
Set out the appropriation in a fixed order every time and label the ratio used at each stage. For a change during the year, time-apportion the profit and apply the old ratio to the first period and the new ratio to the second. Track each partner's current account separately: opening balance + salary + interest on capital + share of residual − drawings.
For not-for-profit entities and incomplete records, candidates prepare a receipts and payments account when an income and expenditure account is required, or use the accounting equation without deriving the missing figure from the opening and closing statements of affairs.
The terminology overlap between receipts and payments (cash basis) and income and expenditure (accruals basis) causes confusion, and incomplete-records questions require a structured derivation of sales, purchases or profit that candidates attempt by guesswork.
What to do instead
For clubs and societies, state the basis first: receipts and payments is a cash summary; income and expenditure applies accruals and excludes capital items and subscriptions in advance. For incomplete records, build the statement of affairs at both dates to find opening and closing capital, then use: closing capital = opening capital + capital introduced + profit − drawings, solving for the missing item. Do two full questions with missing sales and missing cash.