ICAEW Accounting Fundamentals: The Most-Tested Topics with Worked Examples

Accounting Fundamentals is the first ACA exam most trainees sit, and it underpins the rest of the qualification. It is a 2-hour computer-based exam with a 55% pass mark. Nearly half the syllabus weighting (45%) is preparing financial statements, and almost everything else feeds into that: recording transactions, making year-end adjustments and finding errors. This guide shows how the marks are split and works through the topics I see students drop marks on most often. Exam details are from ICAEW's Next Generation ACA syllabus handbook for 2025–2026.

How the Exam Is Built

60% of the marks: 24 objective questions (multiple choice, multi-part multiple choice or multiple response), each worth the same.
25 marks: one long-form question preparing a single company's statement of financial position and statement of profit or loss from a trial balance or list of balances.
15 marks: one long-form question adjusting an existing draft statement of financial position or statement of profit or loss for final transactions or correction of errors.

Syllabus weightings: accounting concepts, ethics and sustainability 15%; maintaining financial records 20%; adjustments to accounting records and financial statements 20%; preparing financial statements 45%. The syllabus covers sole traders, partnerships and limited companies, and uses IFRS terminology (receivables, payables, inventories), so get used to it from day one.

A useful rule of thumb: 120 minutes for 100 marks is 1.2 minutes per mark. The 25-mark question deserves about 30 minutes and the 15-mark question about 18. That leaves roughly 72 minutes for the 24 objective questions, or 3 minutes each.

1. Double Entry

Every transaction has equal debits and credits. Debits increase assets and expenses; credits increase liabilities, equity and income. Most objective questions on this topic give you a transaction and four journals, and the distractors swap a debit and credit or use the wrong account.

Worked example. A business registered for VAT sells goods on credit for £6,000 plus VAT at 20%.

Dr Trade receivables £7,200
Cr Revenue £6,000
Cr VAT payable £1,200

Revenue is recorded net of VAT, because the VAT is collected on behalf of HMRC and is a liability, not income. A common distractor credits revenue with the gross £7,200.

2. Accruals and Prepayments

The expense in profit or loss is the cost of the period, not the cash paid. The fastest reliable method is: cash paid, plus closing accrual, less opening accrual, less closing prepayment, plus opening prepayment.

Worked example: accrual. Year end 31 December. Electricity paid in the year was £3,300. The last bill, £900, covered August to October and was paid. At the start of the year there was an accrual of £400.

November and December are unbilled: £900 × 2/3 = £600 closing accrual.
Expense = £3,300 + £600 − £400 = £3,500.
Statement of financial position: accrual of £600 in current liabilities.

Worked example: prepayment. On 1 October the business paid £2,400 for 12 months' insurance.

Expense for October to December: £2,400 × 3/12 = £600.
Prepayment: £1,800 in current assets.
Journal: Dr Prepayments £1,800, Cr Insurance expense £1,800.

The trap is the direction of the adjustment. An accrual increases the expense and creates a liability; a prepayment reduces the expense and creates an asset. If you are unsure, ask: "Has the business had the benefit yet?"

3. Depreciation and Disposals

Worked example. A machine costs £50,000 on 1 April 20X5, with a residual value of £5,000 and a useful life of 5 years. The year end is 31 December and the policy is to charge a proportionate amount in the year of purchase.

Straight line: (£50,000 − £5,000) ÷ 5 = £9,000 a year.
20X5 charge: £9,000 × 9/12 = £6,750.
20X6 charge: £9,000. Carrying amount at 31 December 20X6: £50,000 − £15,750 = £34,250.

If the machine were sold on 31 December 20X6 for £31,000, the loss on disposal would be £34,250 − £31,000 = £3,250. The journals remove the cost (Cr Machinery £50,000), remove the accumulated depreciation (Dr Accumulated depreciation £15,750), record the proceeds (Dr Cash £31,000) and the loss (Dr Loss on disposal £3,250).

For reducing balance at 25%, residual value is ignored and the rate applies to the carrying amount: year one on a full-year basis would be £12,500, year two £37,500 × 25% = £9,375. Questions often check whether you know which method ignores residual value and whether the policy says full year or pro rata.

4. The Trial Balance and Suspense Accounts

A trial balance only proves that debits equal credits. Some errors make it disagree; others leave it balancing. Know both groups:

Errors that create a suspense balance: single-sided entries, two debits or two credits, transposition on one side only, and casting errors on one side.
Errors that do not: omission, commission (right type of account, wrong account), principle (wrong type, such as capital as revenue), original entry (wrong amount on both sides), complete reversal, and compensating errors.

5. Correction of Errors

Worked example. The trial balance shows debits of £250,500 and credits of £251,300, so a suspense account is opened with a debit of £800. The following errors are found:

(1) Office equipment bought for £1,070 was recorded in the cash book but not posted to the equipment account.
(2) Rent paid of £1,250 was correctly recorded in the cash book but debited to the rent account as £1,520.
(3) Machinery repairs of £600 were debited to the machinery account.

Corrections:

(1) Dr Office equipment £1,070, Cr Suspense £1,070.
(2) Dr Suspense £270, Cr Rent £270.
(3) Dr Repairs £600, Cr Machinery £600. No suspense entry: this is an error of principle and the trial balance was not affected.

Suspense: £800 debit + £270 − £1,070 = nil, which is your check that you have found everything.

Effect on draft profit: (1) none, because equipment is capital; (2) profit rises by £270; (3) profit falls by £600. Net effect: profit falls by £330. "What is the effect on profit?" is one of the most common objective question formats, and the 15-mark long-form question frequently asks for exactly this kind of adjustment to a draft set of accounts.

How to Prepare

Learn the layouts. The 25-mark question rewards a statement of profit or loss and statement of financial position you can produce without thinking about format.
Practise adjustments in batches. Do ten accruals, prepayments, irrecoverable debts and depreciation adjustments in one sitting until the direction of each entry is automatic.
Use topic questions, then mixed sets. Our free Accounting Fundamentals question bank is organised by chapter; once a chapter is done, switch to mixed sets. The ICAEW daily challenge keeps earlier chapters fresh.
Use ICAEW's own resources. ICAEW publishes exam resources for Accounting Fundamentals. Sit at least one full, timed attempt in the exam software before the real thing.

For where this exam fits among the six, read our Certificate Level guide. For more practice ideas, see the ICAEW hub.

FAQs

What is the Accounting Fundamentals pass mark?
55%, as for every ACA Certificate Level exam.

How long is the exam?
2 hours.

Are there written questions?
Yes. 40% of the marks come from two long-form questions worth 25 and 15 marks. The rest is 24 objective questions.

Does Accounting Fundamentals cover group accounts?
No. The syllabus is about single entities: sole traders, partnerships and limited companies. Groups come later in the ACA.

Where can I find an Accounting Fundamentals mock exam?
Start with ICAEW's own exam resources for the module, then use our free question bank for chapter practice and mixed timed sets.

Sources

ICAEW, Next Generation ACA Syllabus Handbook 2025–2026, Accounting Fundamentals (module aim, method of assessment, specification grid, learning outcomes)
ICAEW, Accounting Fundamentals exam resources
ICAEW, Business, finance and accountancy exams (duration and 55% pass mark)