IGCSE Accounting: Accounting Procedures (Cambridge 0452)

Syllabus edition note. This resource follows the Cambridge IGCSE Accounting 0452 syllabus for exams in 2027, 2028 and 2029 (version 1), first examined in the March 2027 series in India and the June 2027 series elsewhere. If you sit 0452 in November 2026, you sit the 2026 syllabus (version 2), which differs: Paper 1 has 35 multiple-choice marks in 1 hour 15 minutes, not 40 marks in 1 hour 30 minutes; Topic 7 is “Accounting principles and policies”, without 7.2 Ethical considerations or 7.3 Technology and sustainability; 4.4 is “Irrecoverable debts and provision for doubtful debts”; income statements are named instead of statements of profit or loss; three-column running balance accounts are not required; Clubs and societies is 5.4 and Manufacturing accounts 5.5; and 6.3 is “Inter-firm comparison”. For this topic, the 2026 syllabus says “recovery of debts written off” where the 2027-2029 syllabus says “irrecoverable debts recovered”, asks for simple inventory valuation statements, and does not separately list choosing a depreciation method for each type of non-current asset, journal entries for purchasing a non-current asset, or calculating the profit or loss on disposal. If you sit in November 2026, work from the 2026 syllabus on the Cambridge International website.

This guide covers Topic 4 Accounting procedures, for Cambridge IGCSE Accounting 0452, syllabus for exams in 2027, 2028 and 2029 (Version 1). It is the fourth of seven topics. Topics 2 and 3 record transactions and check the records; Topic 4 teaches the procedures that make the year’s figures fair before any financial statement is drawn up — deciding what is capital and what is revenue, spreading the cost of non-current assets, matching expenses and incomes to the right year, dealing with customers who will not pay, and putting a value on unsold goods.

Where this fits in 0452

Every procedure here is recorded with the double entry, general journal and ledger skills of Topic 2’s Sources and Recording of Data. Topic 4 also connects closely with Topic 3’s Verification of Accounting Records: posting a repair to a non-current asset account is an error of principle, and correcting it changes the profit for the year and the statement of financial position in exactly the way 4.1 asks you to calculate. Irrecoverable debts also appear in the sales ledger control account in 3.4. Looking forward, Topic 5’s Preparation of Financial Statements applies every adjustment in this topic — depreciation, accruals and prepayments, irrecoverable debts and the allowance, and closing inventory — inside full statements of profit or loss and statements of financial position.

Syllabus coverage

CAMBRIDGE IGCSE ACCOUNTING (0452) — TOPIC 4: ACCOUNTING PROCEDURES

• 4.1 Capital and revenue expenditure and receipts — the distinction between capital expenditure (buying or improving non-current assets, including the costs of getting them ready for use) and revenue expenditure (the day-to-day running costs of the business, including repairs and maintenance); how to account for each (capital expenditure in non-current asset accounts shown in the statement of financial position, revenue expenditure as expenses in the statement of profit or loss); the distinction between capital receipts (such as the proceeds of selling a non-current asset, capital introduced by the owner or a loan received) and revenue receipts (such as sales, rent received and commission received); how to account for each; and how to identify and calculate the effect on profit and on asset valuations of treating an item the wrong way.
• 4.2 Accounting for depreciation and disposal of non-current assets — the meaning of depreciation; the need to account for it; calculating it by the straight-line, reducing balance and revaluation methods; the appropriate methods for different types of non-current asset; journal entries and ledger accounts to record depreciation; journal entries to record the purchase and sale of non-current assets; ledger accounts to record the purchase and sale — the non-current asset account, the provision for depreciation account and the disposal of non-current asset account; and calculating the profit or loss on disposal.
• 4.3 Other payables and other receivables — the importance of matching costs and revenues; applying the matching / accruals concepts by using accruals and prepayments; journal entries and ledger accounts to record accrued and prepaid expenses; and journal entries and ledger accounts to record accrued and prepaid incomes (income owed to the business, and income received in advance).
• 4.4 Irrecoverable debts and allowance for irrecoverable debts — the meaning of irrecoverable debts and irrecoverable debts recovered; journal entries and ledger accounts to record irrecoverable debts; journal entries and ledger accounts to record irrecoverable debts recovered; the need for maintaining an allowance for irrecoverable debts; and journal entries and ledger accounts to record the creation of, and adjustments to, an allowance for irrecoverable debts.
• 4.5 Valuation of inventory — valuing inventory at the lower of cost and net realisable value; calculating the value of inventory; and the effect of an incorrect valuation of inventory on gross profit, profit for the year, equity and asset valuation.

How to approach it

Every sub-topic asks the same two questions about one item: which year does it belong to, and where does it go — the statement of profit or loss, or the statement of financial position? Capital expenditure goes to the statement of financial position and reaches the statement of profit or loss gradually, as depreciation. An expense paid in advance is held back in the statement of financial position until the year it benefits. A debt that will not be paid is removed from assets and charged as an expense. Inventory that will sell for less than it cost is written down now, not when it is sold. If you can say, for any adjustment, which figure in each statement moves and by how much, the journal entries and ledger accounts follow naturally.

Work in a fixed order for every calculation: write the rule (for example, net book value = cost − accumulated depreciation), put in the figures, then state the double entry. Where a question gives a depreciation policy — for instance a full year’s charge in the year of purchase and none in the year of disposal, or a charge on a monthly basis — follow that policy exactly.

Worked example: capital or revenue, and the cost of getting it wrong

Riverside Deliveries charges depreciation on vehicles at 20% per year on cost. During the year its bookkeeper makes two mistakes.

1. Revenue expenditure treated as capital. Repairs to a delivery van costing $2,400 are debited to the motor vehicles account, and 20% depreciation ($480) is charged on them. The repairs should have been an expense of $2,400. The statement of profit or loss shows only $480 of cost instead of $2,400, so profit for the year is overstated by $1,920 ($2,400 − $480). The van appears in the statement of financial position at $2,400 − $480 = $1,920 more than it should, so non-current assets are overstated by $1,920.
2. A capital receipt treated as revenue. An old computer with a net book value of $1,200 is sold for $1,500, and the $1,500 is credited to sales. Correctly, the computer should be removed from the accounts and a profit on disposal of $300 ($1,500 − $1,200) recognised. Instead, revenue includes the full $1,500, so profit for the year is overstated by $1,200 ($1,500 − $300), and the computer is still in the accounts, so non-current assets are overstated by $1,200. (Ignore any depreciation on the computer for this year.)

Effect of the two errors              Profit       Non-current assets
                                         $                  $
Repairs capitalised (net of depn)   +1,920 over        +1,920 over
Sale proceeds credited to sales     +1,200 over        +1,200 over
                                    -----------        -----------
Total overstatement                 +3,120             +3,120

The opposite mistakes work the opposite way: capital expenditure charged as an expense understates both profit and non-current assets, and a revenue receipt credited to capital or a liability understates profit. The first error above is also an error of principle, which Topic 3 corrects with a journal entry (debit vehicle repairs $2,400, credit motor vehicles $2,400); the $480 of depreciation charged on the repairs must then be removed as well.

Worked example: three depreciation methods

Depreciation is the part of the cost of a non-current asset that is used up in an accounting period, through wear and tear, the passage of time or becoming out of date. It must be accounted for so that the cost of the asset is matched against the revenue it helps to earn over its useful life, so that profit is not overstated, and so that the asset is not shown in the statement of financial position at more than a realistic value. Depreciation does not involve any payment of cash.

Straight-line. A machine costs $26,000, is expected to last six years and to have a residual value of $2,000.

Annual depreciation = (cost − residual value) ÷ useful life
                    = ($26,000 − $2,000) ÷ 6 = $4,000 per year

Reducing balance. A vehicle costs $32,000 and is depreciated at 25% per year on its net book value.

Year   Net book value at start   Depreciation (25%)   Net book value at end
          $                          $                    $
1       32,000                     8,000                24,000
2       24,000                     6,000                18,000
3       18,000                     4,500                13,500

Revaluation. Loose tools are valued at $1,800 at the start of the year; tools costing $650 are bought during the year; the tools are valued at $1,550 at the end of the year.

Depreciation = opening valuation + purchases − closing valuation
             = $1,800 + $650 − $1,550 = $900

Choosing a method. Straight-line suits assets that give roughly the same benefit every year, such as machinery used evenly or fixtures and fittings. Reducing balance suits assets that lose most value in their early years and cost more to maintain as they age, such as motor vehicles and computer equipment, because the charge is highest when the asset is new. Revaluation suits loose tools and similar collections of small, low-cost items, where recording each item separately would not be practical and a year-end valuation is a better guide to how much has been used up. Once a method is chosen, it is applied consistently from year to year.

Worked example: depreciation and disposal in the ledger

Hassan’s financial year ends on 31 December. He depreciates equipment at 10% per year on the cost of equipment held at the year end, charging a full year in the year of purchase and none in the year of disposal. On 1 January 2027 the equipment account had a balance of $40,000 and the provision for depreciation of equipment account a balance of $15,600. During 2027:

• 1 April: equipment bought on 1 January 2024 for $9,000 was sold for $4,800, received by bank transfer.
• 1 July: new equipment was bought for $14,000, paid by bank transfer.

Profit or loss on disposal. Depreciation on the item sold was charged for 2024, 2025 and 2026: 3 × 10% × $9,000 = $2,700. Its net book value was $9,000 − $2,700 = $6,300. Proceeds of $4,800 are $1,500 less than this, so there is a loss on disposal of $1,500.

Depreciation for 2027. Equipment held at 31 December is $40,000 − $9,000 + $14,000 = $45,000, so depreciation is 10% × $45,000 = $4,500.

Journal entries (narratives omitted):

                                                          Debit $  Credit $
1 Apr   Disposal of equipment                               9,000
          Equipment                                                   9,000
1 Apr   Provision for depreciation of equipment             2,700
          Disposal of equipment                                       2,700
1 Apr   Bank                                                4,800
          Disposal of equipment                                       4,800
1 Jul   Equipment                                          14,000
          Bank                                                       14,000
31 Dec  Statement of profit or loss (depreciation)          4,500
          Provision for depreciation of equipment                     4,500
31 Dec  Statement of profit or loss (loss on disposal)      1,500
          Disposal of equipment                                       1,500

If a non-current asset is bought on credit, the credit entry is to the supplier’s account, an other payable, instead of bank.

Ledger accounts:

Equipment account
Date     Details                        $  Date     Details                        $
2027                                       2027
1 Jan    Balance b/d               40,000  1 Apr    Disposal                   9,000
1 Jul    Bank                      14,000  31 Dec   Balance c/d               45,000
                                   ------                                     ------
                                   54,000                                     54,000
                                   ======                                     ======
2028
1 Jan    Balance b/d               45,000

Provision for depreciation of equipment account
Date     Details                        $  Date     Details                        $
2027                                       2027
1 Apr    Disposal                   2,700  1 Jan    Balance b/d               15,600
31 Dec   Balance c/d               17,400  31 Dec   Profit or loss             4,500
                                   ------                                     ------
                                   20,100                                     20,100
                                   ======                                     ======
                                           2028
                                           1 Jan    Balance b/d               17,400

Disposal of equipment account
Date     Details                        $  Date     Details                        $
2027                                       2027
1 Apr    Equipment                  9,000  1 Apr    Provision for depn         2,700
                                           1 Apr    Bank                       4,800
                                           31 Dec   Profit or loss (loss)      1,500
                                   ------                                     ------
                                    9,000                                      9,000
                                   ======                                     ======

The loss of $1,500 is an expense in the statement of profit or loss (a profit on disposal would be added as other income). At 31 December 2027 the statement of financial position shows equipment at cost $45,000, less accumulated depreciation $17,400 (the balance on the provision account), giving a net book value of $27,600.

Worked example: accruals and prepayments

The matching / accruals concept says that the expenses and incomes of a period are those that belong to it, whether or not cash has been paid or received. Accruals and prepayments adjust the ledger accounts so that the amount transferred to the statement of profit or loss is the amount for the year, and the difference is left as a balance: an other payable (current liability) or an other receivable (current asset).

Adjustment	Journal entry at the year end	Balance brought down	Statement of financial position
Accrued expense (owed by the business)	Dr expense, Cr other payables	Credit	Other payables
Prepaid expense (paid in advance)	Dr other receivables, Cr expense	Debit	Other receivables
Accrued income (owed to the business)	Dr other receivables, Cr income	Debit	Other receivables
Income received in advance	Dr income, Cr other payables	Credit	Other payables

In each case a second journal entry transfers the year’s amount: Dr statement of profit or loss, Cr expense account; or Dr income account, Cr statement of profit or loss. In the two-sided ledger accounts below, the adjustment appears as the balance carried down.

Rent payable. Annual rent is $9,600. On 1 January 2027 rent of $800 was owing. During 2027 $11,200 was paid, which includes $800 for January 2028.

Rent payable account
Date     Details                        $  Date     Details                        $
2027                                       2027
Various  Bank                      11,200  1 Jan    Balance b/d                  800
                                           31 Dec   Profit or loss             9,600
                                           31 Dec   Balance c/d                  800
                                   ------                                     ------
                                   11,200                                     11,200
                                   ======                                     ======
2028
1 Jan    Balance b/d                  800

The credit balance brought down on 1 January 2027 is the accrued rent (an other payable at the end of 2026). The prepayment at 31 December 2027 is carried down on the credit side and brought down as a debit balance of $800 — an other receivable.

Electricity. $3,150 was paid in 2027 and $420 was owing at 31 December 2027. Journal: Dr electricity $420, Cr other payables $420.

Electricity account
Date     Details                        $  Date     Details                        $
2027                                       2027
Various  Bank                       3,150  31 Dec   Profit or loss             3,570
31 Dec   Balance c/d                  420
                                   ------                                     ------
                                    3,570                                      3,570
                                   ======                                     ======
                                           2028
                                           1 Jan    Balance b/d                  420

Rent receivable. Part of the premises is let at $500 a month ($6,000 for the year). On 1 January 2027 the tenant had paid $500 in advance. During 2027 $5,000 was received, so at 31 December 2027 the tenant owes $500. Journal: Dr other receivables $500, Cr rent receivable $500.

Rent receivable account
Date     Details                        $  Date     Details                        $
2027                                       2027
31 Dec   Profit or loss             6,000  1 Jan    Balance b/d                  500
                                           Various  Bank                       5,000
                                           31 Dec   Balance c/d                  500
                                   ------                                     ------
                                    6,000                                      6,000
                                   ======                                     ======
2028
1 Jan    Balance b/d                  500

The opening credit balance was income received in advance (an other payable); the closing debit balance is accrued income (an other receivable). Income of $6,000 — exactly twelve months at $500 — reaches the statement of profit or loss, whatever the cash received.

Worked example: irrecoverable debts and the allowance

An irrecoverable debt is an amount owed by a credit customer that the business decides will never be paid, for example because the customer is bankrupt. It is written off: Dr irrecoverable debts, Cr the customer’s account (reducing trade receivables). At the year end the irrecoverable debts account is transferred to the statement of profit or loss as an expense.

An irrecoverable debt recovered is a debt written off in an earlier period that the customer later pays. The customer’s account is first reinstated, then the receipt is recorded, so the customer’s account shows a full history. For example, J Okafor’s debt of $600 was written off in 2025, and on 14 May 2027 he pays it in full by bank transfer:

                                                          Debit $  Credit $
14 May  J Okafor (reinstate the debt)                         600
          Irrecoverable debts recovered                                 600
14 May  Bank                                                  600
          J Okafor                                                      600

J Okafor account
Date     Details                        $  Date     Details                        $
2027                                       2027
14 May   Irrecoverable debts          600  14 May   Bank                         600
           recovered
                                   ------                                     ------
                                      600                                        600
                                   ======                                     ======

Irrecoverable debts recovered account
Date     Details                        $  Date     Details                        $
2027                                       2027
31 Dec   Profit or loss               600  14 May   J Okafor                     600
                                   ------                                     ------
                                      600                                        600
                                   ======                                     ======

Irrecoverable debts recovered is income in the statement of profit or loss.

An allowance for irrecoverable debts is an estimate of the part of the remaining trade receivables that may not be collected. It is needed because of prudence and matching: some of this year’s credit sales will probably never be paid for, and trade receivables should not be shown at more than the business expects to collect. Only the creation of the allowance, or the change in it, is charged (or credited) to the statement of profit or loss; the full allowance is deducted from trade receivables in the statement of financial position.

At 31 December 2027 Mei’s trade receivables are $48,600 before adjustments. P Singh’s debt of $1,100 is to be written off. The allowance for irrecoverable debts, $1,280 on 1 January 2027, is to be 3% of the remaining trade receivables.

Remaining trade receivables  = $48,600 − $1,100 = $47,500
Allowance required           = 3% × $47,500     = $1,425
Increase in allowance        = $1,425 − $1,280  = $145   (expense)

                                                          Debit $  Credit $
31 Dec  Irrecoverable debts                                 1,100
          P Singh                                                     1,100
31 Dec  Statement of profit or loss                         1,100
          Irrecoverable debts                                         1,100
31 Dec  Statement of profit or loss                           145
          Allowance for irrecoverable debts                             145

Irrecoverable debts account
Date     Details                        $  Date     Details                        $
2027                                       2027
31 Dec   P Singh                    1,100  31 Dec   Profit or loss             1,100

Statement of financial position (extract) at 31 December 2027
                                              $
Trade receivables                        47,500
Less allowance for irrecoverable debts    1,425
                                         ------
                                         46,075

At 31 December 2028 trade receivables, after writing off irrecoverable debts, are $42,000, and the allowance is again 3%, which is $1,260. The allowance falls by $1,425 − $1,260 = $165, which is credited to the statement of profit or loss as income: Dr allowance for irrecoverable debts $165, Cr statement of profit or loss $165.

Allowance for irrecoverable debts account
Date     Details                        $  Date     Details                        $
2027                                       2027
31 Dec   Balance c/d                1,425  1 Jan    Balance b/d                1,280
                                           31 Dec   Profit or loss               145
                                   ------                                     ------
                                    1,425                                      1,425
                                   ======                                     ======
2028                                       2028
31 Dec   Profit or loss               165  1 Jan    Balance b/d                1,425
31 Dec   Balance c/d                1,260
                                   ------                                     ------
                                    1,425                                      1,425
                                   ======                                     ======
                                           2029
                                           1 Jan    Balance b/d                1,260

When an allowance is created for the first time there is no opening balance, so the whole amount is the charge: Dr statement of profit or loss, Cr allowance for irrecoverable debts.

Worked example: valuing inventory and the effect of errors

Inventory is valued at the lower of cost and net realisable value, item by item (or for each group of identical items). Net realisable value is the amount the goods are expected to be sold for, less any costs still to be paid to complete and sell them. This follows the prudence concept: an expected loss is recognised now, while an expected profit is not recognised until the goods are sold.

Item	Units	Cost per unit	Net realisable value per unit	Lower per unit	Value $
A	40	$25	$31	$25 (cost)	40 × $25 = 1,000
B	60	$18	$20 selling price − $3 selling costs = $17	$17 (NRV)	60 × $17 = 1,020
C	25	$40	$30 selling price after repair − $6 repair cost = $24	$24 (NRV)	25 × $24 = 600
Total					2,620

Total cost is $3,080 and total net realisable value is $2,860, but comparing the totals ($2,860) would hide the losses on items B and C behind the extra value of item A. Item by item, the inventory is valued at $2,620.

The effect of an incorrect valuation. Closing inventory is deducted in cost of sales and appears as a current asset. Suppose closing inventory at the end of Year 1 is overstated by $1,200:

Figure	Year 1 (closing inventory overstated)	Year 2 (same figure is the opening inventory)
Cost of sales	Understated by $1,200	Overstated by $1,200
Gross profit	Overstated by $1,200	Understated by $1,200
Profit for the year	Overstated by $1,200	Understated by $1,200
Equity (capital) at year end	Overstated by $1,200	Correct, if Year 2 closing inventory is right
Inventory (current assets) at year end	Overstated by $1,200	Correct, if Year 2 closing inventory is right

An undervaluation has the opposite effect: gross profit, profit for the year, equity and current assets are all understated in Year 1, and gross profit and profit for the year are overstated in Year 2. Over the two years the total profit is the same; the error moves profit from one year to the other.

Common mistakes

Treating repairs, maintenance or fuel for a non-current asset as capital expenditure, or forgetting that delivery and installation costs of a new asset are capital. Calculating reducing balance depreciation on cost every year instead of on the net book value. Crediting depreciation to the non-current asset account instead of the provision for depreciation account, or leaving the accumulated depreciation of an asset sold in the provision account instead of transferring it to the disposal account. Working out the profit or loss on disposal by comparing proceeds with cost instead of with net book value. Putting an accrued expense or a prepayment on the wrong side when balancing the account — an accrued expense is brought down as a credit balance and a prepayment as a debit balance. Charging the whole allowance for irrecoverable debts to the statement of profit or loss every year instead of only the change in it. Forgetting to reinstate the customer’s account before recording an irrecoverable debt recovered. Valuing inventory by comparing total cost with total net realisable value instead of item by item, or deducting selling costs from cost instead of from selling price.

Quick revision checklist

• Classify expenditure and receipts as capital or revenue, and calculate the effect of the wrong treatment on profit and on asset valuations.
• Explain what depreciation is and why it is needed.
• Calculate depreciation by the straight-line, reducing balance and revaluation methods, and choose a suitable method for a given asset.
• Prepare journal entries for depreciation and for buying and selling a non-current asset.
• Prepare the non-current asset, provision for depreciation and disposal accounts, and calculate the profit or loss on disposal.
• Explain the matching / accruals concept and prepare journal entries and ledger accounts for accrued and prepaid expenses and incomes, with the balances brought down.
• Record irrecoverable debts and irrecoverable debts recovered.
• Explain why an allowance for irrecoverable debts is kept, and record its creation, increase and decrease.
• Value inventory at the lower of cost and net realisable value, item by item, and state the effect of an over- or undervaluation on gross profit, profit for the year, equity and asset valuation.

Official syllabus

Cambridge IGCSE Accounting 0452 syllabus for 2027, 2028 and 2029 (Version 1, September 2024) — cambridgeinternational.org, verified 2026-09-16.