This is the first article in a three part series to help you familiarise yourself with the AAT Advanced Diploma in Accounting units (AKA level 3) as you progress on from level 2.
Common mistakes at AAT Advanced Diploma in Accounting
- Part 1 – Advanced Bookkeeping and Final Accounts Preparation
- Part 2 – Management Accounting: Costing and Indirect Tax
- Part 3 (coming soon)
The series is based on the feedback available in the examiner’s reports which are published annually, and available to AAT students within MyAAT study support.
The examiner reports are:
- designed to provide information on the performance of students in assessment tasks.
- intended to be constructive, informative, and promote a better understanding of the specification content and the assessment requirements.
But they’re long documents, and not the most exciting reads. To make sure you’re getting the most from this amazing resource, we’re going to break them down within this Common mistakes series.
In this article, we’ll be looking at the two Financial Accounting units and will link to articles to support your understanding of each topic. If you want to read the full examiner reports at any time, just head over to MyAAT study support, where you’ll find dedicated examiner reports for each unit.
Advanced Booking Unit (AVBK)
Let’s start off by looking at the Advanced bookkeeping (AVBK) unit, and how students performed on each task (in order of best to worst performance).
Students showed the strongest performance in this task.
Task 1 tests the use and purpose of the non-current assets register, including accounting for depreciation and understanding the distinction between capital and revenue expenditure. It also assesses knowledge associated with non-current assets.
70% of students met or exceeded the required level.
Task 5 tests bank reconciliations, understanding how accounting records relate to each other, and period end routines, including extending and completing the extended trial balance (ETB).
65% of students met or exceeded the competence level.
Task 2 tests ledger accounting for non-current assets, including the use of the journal as the book of prime entry for depreciation and disposals. Part-exchange transactions may also be involved.
Just over 50% of students met or exceeded the competence requirement and approximately 15% fell into the borderline range.
Task 3 tests ledger accounting for opening and closing accruals and prepayments of both income and expenses. It also explores understanding of ethical principles.
The feedback in the report states that weak areas of performance in this task include
- an inability to complete ledger accounts, sometimes even omitting the bank entry, labelling it incorrectly or putting it on the wrong side.
- Other errors include writing off the balance to the statement of financial position, instead of the statement of profit or loss,
- or not writing it off at all but instead labelling it as the balance c/d.
It suggests some errors may have been due to not reading the question carefully, and therefore incorrectly dealing with the opening balance adjustments, and inaccurately performing pro rata calculations.
Therefore, to help you in this task,
- Ensure you have a good understanding of the complete cycle of prepayments and accruals, for both expenditure and income.
- Practice how to make opening and closing adjustments, and think about how the adjustments affect balances and the correct dates that apply to each.
- This two-part article titled Accruals concept, provides support with what you need to actually do, and Accounting principles and why you should understand them will give you some underpinning context.
Students showed the weakest performance in this task, with just under 50% of students meeting or exceeding the requirements, and approximately 15% of students in the borderline range.
Task 4 tests period end accounting adjustments, along with routines and ethical principles in relation to year end.
This task clearly assesses knowledge and understanding that many students find challenging, which is likely to be because it covers a range of adjustments and the correction of errors.
In order to be successful in this task, you need to fully understand:
- how accounting systems work
- how different types of accounts are increased and decreased by debits and credits
- and the difference between errors that are disclosed by the trial balance, and those that are not.
The report suggests that when a suspense account is given, you should check that your entries clear it to zero. This is not a requirement of the task but will help you detect any incorrect adjustments.
Practising all types of adjustments is a good idea because if you can make an adjustment in a T account, then you can do it in a journal as well as in the trial balance.
There are lots of study tips on AAT Commentto help you with this task. A good starting point is the Accounting adjustments in an ETB or journals series, then you can try:
- Using a four line journal to correct errors
- Understanding irrecoverable and doubtful debts
- How to prepare closing inventory for financial statements
- Fundamental ethical principles, threats and safeguards part 1 & 2
Final Accounts Preparation Unit (FAPR)
Next, let’s review how student’s did on the Final Accounts Preparation unit (FAPR), in order of strongest to weakest perfomance.
Students performed the best on this task.
Task 1 tests whether students can find missing figures using incomplete information. It also covers reconstruction of general ledger accounts, and calculation of bank totals and balances from the information given.
This series on Sales and Purchases reviews how sales ledger and purchase ledger control accounts fit into the accounting system in the first place, but it doesn’t cover reconstructing control accounts from incomplete records. In the same way, part 1 of Balancing a trial balance and correcting errors with journals gives overall context to how accounts are categorised and how their balances are increased or decreased.
Both articles will help you know what an account should look like and therefore make it easier to work out missing figures when you’re presented with incomplete records.
Students performed well on this task too.
Task 3 tests the student’s ability to complete either a statement of profit or loss, or statement of financial position for a sole trader, from a trial balance. It also assesses the understanding of capital for a sole trader, including how this is recorded in a ledger account.
Students performed well on this task; over 75% met the competence levels.
Task 6 assesses students’ ability to prepare final accounts for partnerships and their knowledge of reporting requirements for a limited company.
Overall student performance was reasonably good here.
Task 5 assesses accounting for partnerships, including completing appropriation, current and capital accounts as well as demonstrating knowledge of partnership agreements and goodwill on a partnership change. The task contains both numerical, and understanding of knowledge based questions.
- Final accounts preparation – the appropriation account
- Current accounts in FAPR
- FAPR when partnerships dissolve, taking goodwill into account
- Accounting adjustments for significant changes in partnerships
Students struggled with this task. Just over half achieved competence levels.
Task 4 tests student’s understanding of different organisation types, the need for final accounts, and reporting regulations. Students were required to read and select the correct response to questions rather than prepare numerical calculations.
The report states that weaknesses in this task include:
- not accurately recognising the structure and financial characteristics of different organisations
- not always understanding terms like equity, going concern, limited liability and material
- being unable to recall certain sources of regulation or underlying principles of final accounts preparation
- and inaccurate recall of the accounting equation.
The accounting principles and why you should understand them article on AAT Comment should help explain some of the fundamental accounting terms.
Whilst this underpinning knowledge probably isn’t top of your revision list it most certainly needs to be there. Unfortunately, you just have to learn it as you can’t rely on common sense, and winging it is unlikely to be a successful exam strategy!
The unit specification gives comprehensive details of what’s covered in the unit, and the practice assessments provide guidance regarding the depth of knowledge and understanding required.
This proved to be the most challenging task with the poorest performance.
Task 2 tests whether students can recognise situations where there are incomplete records, and demonstrate understanding and application of topics such as gross sales margin, mark-up on cost and the constituents of cost of goods sold.
Students are also required to show how they’d apply ethical principles when preparing final accounts.
The questions in this task are less routine than in other tasks. Problem-solving and simple mathematics are involved. Students also need to be able to assess the reasonableness of figures within a given context.
In a similar vein to task 4 in AVBK, this task requires a greater depth of understanding of accounting systems, debits and credits and the construction of financial statements than maybe you realise.
Common weaknesses are due to confusion about:
- margin and mark-up; purchases, cost of goods sold and gross profit
- the elements of cost of goods sold and how they can be used to calculate a missing figure
- and being able to use a single figure for movement in inventory.
It’s best to take a holistic approach to this task, as investing time in understanding how everything fits together is key to success here. On top of that, ensure you’re comfortable doing basic calculations, especially percentages, and get into the habit of ‘assess reasonableness’.
In other words, check your answers fit with the size of figures in the original data and/or your workings. Try these articles on AAT Comment to help ensure you’re prepared for this tricky task.
- Cost of goods sold
- Margins and mark-ups
- Fundamental ethical principles, threats and safeguards part 1
- Percentages, proportions, ratios & fractions made easy
The AAT examiner reports for the Advanced Diploma in Accounting outline the various topics where students struggle, which make a great starting point for your revision. Head to part 2 now where we’ll have a look at the Management Accounting and Indirect Tax units.
Read more on studying AAT:
- The key to success in synoptics
- Choose the best study method for you
- What to expect from Advanced Level AAT
Gill Myers is a self-employed accounts consultant. She has taught AAT qualifications since 2005 and written numerous articles and e-learning resources.