IGCSE Accounting: Financial statements of sole traders (Cambridge 0452) – Revision Notes

Syllabus edition note. This resource follows the Cambridge IGCSE Accounting 0452 syllabus (and Cambridge O Level Accounting 7707, which has the same subject content for the same series) 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 covers only trading and service businesses in 5.1 and limits drawings adjustments to goods taken by the owner for own use; for limited companies it excludes cumulative and non-cumulative preference shares, rights issues, share premium and capital redemption reserve but requires the difference between redeemable and non-redeemable preference shares (the 2027-2029 syllabus lists none of these); and for incomplete records it does not ask why businesses keep them or what their advantages are. If you sit in November 2026, work from the 2026 syllabus on the Cambridge International website.

Quick recall for syllabus section 5.1 Sole traders (Cambridge IGCSE Accounting 0452, exams in 2027, 2028 and 2029). Full explanations and two complete worked examples are in the study guide. Test yourself with the practice questions. Topic-wide notes: Preparation of Financial Statements revision notes. Also see the course hub, the checklist and the free diagnostics.

Sole trader basics

Point	Remember
Advantages	Keeps all profit; own boss; cheap and simple to start; private
Disadvantages	Unlimited liability; one person’s funds; illness stops trading; all losses and workload
Trading	Buys and resells: cost of sales, gross profit
Service	Sells time or skill: fees less expenses, no gross profit
Manufacturing	Makes what it sells: manufacturing account first
Combination	Gross profit on the trading side; service income added after it
Statement of profit or loss	Profit or loss for a period
Statement of financial position	Assets, liabilities and capital on a specified date

Statement of financial position headings

• Non-current assets: used for over a year (van, machinery). Intangible assets: no physical form (goodwill).
• Current assets: cash or turned into cash within a year (inventory, trade receivables, other receivables, bank).
• Current liabilities: due within a year (trade payables, other payables, overdraft). Non-current liabilities: due after more than a year.
• Capital: opening capital + profit - drawings (+ capital introduced).

Formulae

Item	Formula
Straight line	Cost x rate
Reducing balance	Rate x (cost - accumulated depreciation)
Revaluation	Opening value + additions - closing value
Cost of sales	Opening inventory + purchases (net of returns, plus carriage inwards) - closing inventory
Gross profit	Net revenue - cost of sales
Profit for the year	Gross profit + other income - expenses
Prime cost	Raw materials used + direct labour
Factory cost of production	Prime cost, plus overheads, then add the opening and deduct the closing work in progress
Expense for the year	Trial balance figure + accrued - prepaid
Income for the year	Trial balance figure + accrued - received in advance

Method: both statements from a trial balance

1. Read every adjustment first and tick each trial balance line it touches.
2. Work out depreciation, the allowance and the accruals and prepayments on a workings page.
3. Manufacturing only: build the manufacturing account to factory cost of production.
4. Build cost of sales and gross profit (trading or manufacturing), add other income, subtract adjusted expenses.
5. Set out each non-current asset with its cost, its depreciation to date and its carrying value.
6. List current assets, then capital, then liabilities. Adjust drawings.
7. Check that total assets equal total capital and liabilities.

Where each adjustment goes

Adjustment	Effect on profit	Effect on the statement of financial position
Depreciation	Expense	Lowers carrying value
Expense owing	Higher expense	Other payables
Expense prepaid	Lower expense	Other receivables
Income accrued	Higher income	Other receivables
Income received early	Lower income	Other payables
Debt written off	Expense	Lowers trade receivables
Allowance rises or falls	Expense or income for the change only	Whole allowance deducted from trade receivables
Goods taken (at cost)	Lower purchases	Higher drawings
Asset taken (carrying value)	None	Asset lower, drawings higher
Private expense paid	Lower expense	Higher drawings

Worked reminder: correcting a draft profit

Rafiq Sobhan’s draft profit is 9,800. Wages of 400 are owing; rent of 250 was paid in advance; commission of 180 is accrued; goods costing 120 were taken for own use; 90 of private telephone was charged to the business; a debt of 150 is irrecoverable; the allowance rises by 30.

Corrected profit = 9,800 - 400 + 250 + 180 + 120 + 90 - 150 - 30 = 9,860. His drawings rise by 120 + 90 = 210.

Effect of an error on the other balances

Each row shows what happens if the item is missed from the finished statements.

Item missed	Profit	Statement of financial position
Closing inventory overstated by 300	300 too high	Assets and capital 300 too high
Accrued expense of 200 left out	200 too high	Other payables 200 too low; capital 200 too high
Depreciation understated by 500	500 too high	Carrying value and capital 500 too high
Irrecoverable debt of 150 not written off	150 too high	Trade receivables and capital 150 too high
Goods costing 80 taken, not recorded	80 too low	Drawings 80 too low; closing capital unchanged
Printer with carrying value 300 taken, not recorded	No effect	Assets 300 too high; drawings 300 too low; capital 300 too high

The statement of financial position can still balance when it is wrong, so a balance check does not find these errors.

The syllabus text says both papers draw on all the subject content and that calculators may be used, so 5.1 content can appear on either paper.

Layout skeletons

Sales less returns = net revenue
Net revenue less cost of sales = gross profit
Gross profit plus other income, less expenses = profit

Non-current assets (cost, depreciation, carrying value)
plus current assets = total assets
Capital (opening, profit, drawings), then long-term and
short-term liabilities = same total

Must-know distinctions

• Accrued means owing or earned but not yet paid or received. Prepaid (or received in advance) means settled before the period it relates to.
• Irrecoverable debt: a specific debt written off. Allowance: an estimate against what remains.
• Reducing balance works from carrying value. Straight line works from cost. Revaluation suits items counted rather than tracked individually.
• Drawings reduce capital and never appear as an expense.
• Effect of a change: trace it into profit, then capital, then the statement of financial position.

Quick self-test

1. Which statement is drawn up as at a date?
2. Depreciation on cost 9,600 at 10% straight line?
3. Reducing balance at 20% when the carrying value at the start is 7,200?
4. Tools valued 2,000, bought 500, valued 1,700 at the end: depreciation?
5. After a write-off, trade receivables are 8,000; the allowance is to be 5% and is currently 310. What goes through the statement of profit or loss?
6. Where does a prepaid insurance balance appear in the statement of financial position?
7. Goods costing 260 are taken for own use. Effect on purchases and drawings?
8. Opening capital 21,000, profit 6,500, drawings 4,000: closing capital?
9. Raw materials used 12,000 and direct labour 9,000: prime cost?
10. A hairdresser’s statement of profit or loss: is there a gross profit?
11. Closing inventory was understated by 500. Effect on profit?
12. An accrued income of 120 is recorded. Effect on income and on the statement of financial position?

Answers

1. The statement of financial position.
3. 1,440.
4. 2,000 + 500 - 1,700 = 800.
5. New allowance 400, so an expense of 90.
6. Other receivables, a current asset.
7. Purchases fall by 260; drawings rise by 260.
8. 23,500.
9. 21,000.
10. No. It is a service business, so fees less expenses give profit.
11. Cost of sales is too high, so profit is 500 too low.
12. Income rises by 120; other receivables rise by 120.

Where marks are usually lost

• Writing the full allowance, not the change, as the expense.
• Applying reducing balance to cost.
• Adding a prepayment to the expense.
• Putting private expenses or goods taken into expenses and forgetting drawings.
• Omitting accumulated depreciation, showing only carrying value with no workings.
• Showing a service business with cost of sales.
• Missing opening or closing work in progress in factory cost of production.
• Not checking that the statement of financial position balances.

Frequently asked questions

Does a service business have cost of sales? No. A service business sells skills or time rather than goods, so its expenses come straight off revenue without a cost of sales section.

Does a balanced statement of financial position prove the accounts are right? No. A statement of financial position can still balance when an adjustment has been missed, because the error affects both profit and the related asset or liability. A balance check does not find these errors.

How is the allowance for irrecoverable debts charged in the statement of profit or loss? Write off irrecoverable debts first, calculate the new allowance on the remaining trade receivables, and charge only the movement in the allowance. Charging the full allowance is a common error.

How are a manufacturer’s inventories shown in the statement of financial position? A manufacturing sole trader shows inventories in three parts under current assets: raw materials, work in progress and finished goods.

Official syllabus

Cambridge International Education, Cambridge IGCSE Accounting 0452 syllabus for exams in 2027, 2028 and 2029 (version 1), section 5.1 Sole traders.