The 7 Hardest Topics in Intermediate Accounting (and How to Finally Understand Each One)
Ask accounting faculty which course loses the most students and almost all of them say the same thing: Intermediate Accounting. Universities have launched boot camps and intervention programs specifically because so many students who did fine in introductory accounting suddenly struggle. The material is not impossible — but it introduces topics where the business transaction itself is unfamiliar, and you cannot record what you do not understand. Here are the seven topics that cause the most trouble, why each one confuses people, and the specific fix that makes it click.
Why Intermediate Feels So Different
Introductory accounting deals with transactions every student understands: buying supplies, paying rent, selling goods. Intermediate accounting moves into bonds, leases, pensions, stock options and tax timing differences — transactions most 19- and 20-year-olds have never encountered in real life. Textbook authors have openly acknowledged this: students struggle because they lack the business background to picture what is actually happening.
That gives us the core fix for every topic below: understand the business story before you touch the journal entry. If you can explain the transaction to a friend in plain language, the debits and credits become much easier. For general course survival tips, see our guide to surviving intermediate accounting.
1. Time Value of Money Inside Accounting
Why it is hard: Students often learn present value in a finance class, then meet it again in accounting buried inside bonds, leases, notes receivable and pensions. They know the formula but do not recognise when an accounting measurement is actually a present value calculation.
The fix: Learn one rule — whenever cash is paid or received over time and the accounting standard says "measure at present value," you are discounting future cash flows at a market rate. Bonds, lease liabilities and long-term notes all follow that pattern. Refresh the mechanics with our time value of money guide.
2. Bond Premiums and Discounts
Why it is hard: The interest expense on the income statement does not equal the cash interest paid, and the carrying value changes every period. Students mix up the coupon rate and the market rate.
The fix: Remember the two rates have two jobs. The coupon rate sets the cash paid. The market rate at issuance sets the expense. The difference between them is the amortisation. Build one amortisation table by hand and the pattern locks in.
Cash paid = Face value × coupon rate
Amortisation = Interest expense − Cash paid (discount) or Cash paid − Interest expense (premium)
Full worked example: bonds payable complete guide. Practise with bond questions.
3. Revenue Recognition Under ASC 606
Why it is hard: The five-step model sounds simple until a contract bundles a product, installation and a service plan, or includes a discount or bonus.
The fix: Always ask two questions in order: what separate promises (performance obligations) are in this contract, and when does the customer get control of each one? Allocation of price follows from those answers. See the ASC 606 five-step model and, for construction-style contracts, long-term contract revenue.
4. Leases Under ASC 842
Why it is hard: Students must classify the lease, compute the lease liability as a present value, set up a right-of-use asset, and then follow two different expense patterns depending on classification.
The fix: Separate the balance sheet from the income statement. On the balance sheet, finance and operating leases look the same at the start: liability equals the present value of payments. The difference is only how expense hits the income statement — front-loaded interest plus amortisation for finance leases, a single straight-line cost for operating leases. Review lease accounting under ASC 842.
5. Deferred Taxes
Why it is hard: Students try to memorise whether a difference creates a deferred tax asset or liability instead of reasoning about it.
The fix: Ask one question: will this difference make future taxable income higher or lower than future book income? Higher future taxes means a deferred tax liability; lower future taxes means a deferred tax asset. Depreciation (tax faster than book) is the classic liability example. See deferred tax accounting explained and MACRS vs book depreciation.
6. The Statement of Cash Flows
Why it is hard: The indirect method runs backwards from net income, and the sign of every working-capital adjustment feels counterintuitive.
The fix: Use one rule for all current operating assets and liabilities: an increase in an asset uses cash (subtract); an increase in a liability provides cash (add). Then add back non-cash expenses like depreciation. Walk through our indirect method guide and compare with the direct method.
7. Diluted Earnings Per Share
Why it is hard: Diluted EPS requires "what if" adjustments — what if options were exercised, what if convertible bonds became shares — plus the treasury stock method and the antidilution test.
The fix: Handle each potential security separately. Compute its effect on the numerator and denominator, rank by dilutive impact, and include only those that reduce EPS. See earnings per share explained.
Midterm Coming Up and One Topic Still Isn't Clicking?
Sometimes one live explanation saves hours of rereading. Accounting Tutor Online works one-on-one with intermediate accounting students on bonds, leases, deferred taxes, cash flows and EPS — at your pace, on your homework problems.
Book an intermediate accounting tutor →A System for Any Hard Topic
When you hit any new topic that does not make sense, run this four-step loop:
- Tell the story. Write two sentences explaining the business transaction in plain English — who pays whom, when, and why.
- Find the measurement rule. What does the standard say about how to measure it: cost, fair value, present value?
- Work one example by hand. No calculator shortcuts yet. Write the journal entries and the T-accounts.
- Drill variations. Practice 15–20 questions where the numbers and wording change. This is where understanding becomes exam speed.
Test Yourself: Intermediate Accounting
Pick an answer to see the explanation. 4 questions.
Q1. A company issues $100,000 of bonds with a 6% coupon when the market rate for similar bonds is 8%. The bonds will sell:
Q2. Bonds are carried at $92,016. The market rate at issuance was 8% and annual cash interest is $6,000. Under the effective interest method, interest expense for the year is:
Q3. Under the indirect method, accounts receivable increased by $5,000 during the year. In operating activities you should:
Q4. Tax depreciation is larger than book depreciation in the early years of an asset's life. This creates a:
Drill Every Intermediate Topic
PrepQBank has adaptive questions on bonds, leases, deferred tax, revenue recognition and cash flows — with step-by-step explanations even when you get the answer right. Free: 8/week. Upgrade for 300/month or unlimited.