IGCSE Accounting: Accounting Procedures — Revision Notes

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.

Condensed for the final weeks. For the full explanation and worked ledger accounts, use the Accounting Procedures study guide.

The core question this topic answers

Five procedures, one underlying purpose: does each figure belong to this year, and does it belong in the statement of profit or loss or the statement of financial position? Each adjustment moves an amount between the two statements, and every one of them is applied again in Topic 5’s Preparation of Financial Statements.

4.1 Capital and revenue expenditure and receipts

	Capital	Revenue
Expenditure	Buying or improving non-current assets, including delivery, installation and other costs of getting them ready for use	Running costs: repairs, maintenance, fuel, wages, insurance, rent
Where it goes	Non-current asset account → statement of financial position (then depreciated)	Expense → statement of profit or loss
Receipts	Proceeds from selling a non-current asset; capital introduced by the owner; loans received	Sales, rent received, commission received, interest received
Where it goes	Not income — only any profit or loss on disposal reaches the statement of profit or loss	Income → statement of profit or loss

Wrong treatment — the effect:

Mistake	Profit	Asset valuation
Revenue expenditure treated as capital	Overstated	Non-current assets overstated
Capital expenditure treated as revenue	Understated	Non-current assets understated
Proceeds of a non-current asset credited to sales (asset not removed)	Overstated by the net book value	Non-current assets overstated by the net book value
Revenue receipt credited to capital or a liability	Understated	—

If the wrongly capitalised amount has been depreciated, the overstatement is the amount less the depreciation charged on it. Posting an item to the wrong type of account like this is an error of principle, corrected by journal entry in Topic 3’s Verification of Accounting Records.

4.2 Accounting for depreciation and disposal of non-current assets

Depreciation = the part of a non-current asset’s cost used up in the period (wear and tear, time, becoming out of date). Why: matches the cost against the revenue the asset helps to earn; stops profit and asset values being overstated. No cash is paid.

Method	Calculation	Suits
Straight-line	(Cost − residual value) ÷ useful life	Assets giving even benefit each year, e.g. machinery used evenly, fixtures and fittings
Reducing balance	Fixed % × net book value at the start of the year	Assets losing most value early, e.g. motor vehicles, computer equipment
Revaluation	Opening valuation + purchases − closing valuation	Loose tools and similar small, low-cost items

Double entries:

• Depreciation: Dr statement of profit or loss, Cr provision for depreciation.
• Purchase: Dr non-current asset, Cr bank (or the supplier, an other payable, if on credit).
• Sale: Dr disposal, Cr non-current asset (cost); Dr provision for depreciation, Cr disposal (accumulated depreciation on that asset); Dr bank, Cr disposal (proceeds).
• Balance on disposal: profit → Dr disposal, Cr statement of profit or loss (other income); loss → Dr statement of profit or loss, Cr disposal (expense).

Profit or loss on disposal = proceeds − net book value at the date of disposal. Net book value = cost − accumulated depreciation.

4.3 Other payables and other receivables

Matching / accruals: record the expenses and incomes that belong to the period, not the cash paid or received in it.

Item	Year-end journal	Balance b/d	Statement of financial position
Accrued expense	Dr expense, Cr other payables	Credit	Other payables (current liability)
Prepaid expense	Dr other receivables, Cr expense	Debit	Other receivables (current asset)
Accrued income	Dr other receivables, Cr income	Debit	Other receivables (current asset)
Income received in advance	Dr income, Cr other payables	Credit	Other payables (current liability)

Expense for the year = paid − opening accrual + closing accrual (+ opening prepayment − closing prepayment). In the ledger, the transfer to the statement of profit or loss is the balancing figure once the opening balance, the cash and the closing balance c/d are in.

4.4 Irrecoverable debts and allowance for irrecoverable debts

• Irrecoverable debt: Dr irrecoverable debts, Cr customer. Year end: Dr statement of profit or loss, Cr irrecoverable debts (expense).
• Irrecoverable debt recovered: reinstate — Dr customer, Cr irrecoverable debts recovered; then receipt — Dr bank, Cr customer. Year end: the recovery is income in the statement of profit or loss.
• Allowance for irrecoverable debts: an estimate of trade receivables that may not be collected, kept for prudence and matching.
  • Create or increase: Dr statement of profit or loss, Cr allowance (only the new amount or the increase is an expense).
  • Decrease: Dr allowance, Cr statement of profit or loss (income).
  • Statement of financial position: trade receivables less the full allowance.
• Write off irrecoverable debts before calculating a percentage allowance on the remaining trade receivables.

4.5 Valuation of inventory

• Lower of cost and net realisable value, item by item.
• Net realisable value = expected selling price − costs still to be paid to complete and sell the goods.

Closing inventory	Gross profit	Profit for the year	Equity	Current assets
Overstated	Overstated	Overstated	Overstated	Overstated
Understated	Understated	Understated	Understated	Understated

Next year: the wrong figure becomes opening inventory, so the next year’s gross profit and profit for the year move by the same amount in the opposite direction.

Worked example: loss on disposal

A machine bought for $15,000 is depreciated at 20% per year on cost. It is sold for $5,200 after three full years’ depreciation.

Accumulated depreciation   3 × 20% × $15,000   =  $9,000
Net book value             $15,000 − $9,000    =  $6,000
Loss on disposal           $6,000 − $5,200     =    $800

Disposal account
  Debit side:   Machinery (cost)                      15,000
  Credit side:  Provision for depreciation             9,000
                Bank (proceeds)                        5,200
                Statement of profit or loss (loss)       800
                                                      ------
                Credit side total                     15,000

Exam traps

• Treating repairs as capital expenditure, or delivery and installation costs of a new asset as revenue expenditure.
• Applying the reducing balance percentage to cost every year.
• Comparing disposal proceeds with cost instead of net book value.
• Crediting depreciation to the asset account instead of the provision for depreciation account.
• Bringing an accrued expense down as a debit or a prepayment down as a credit.
• Charging the whole allowance for irrecoverable debts each year instead of only the change.
• Calculating the allowance before writing off the year’s irrecoverable debts.
• Comparing total cost with total net realisable value instead of item by item.
• Forgetting the knock-on effect of a closing inventory error on the next year’s profit.

Self-test

1. Classify as capital or revenue: (a) installation of a new machine; (b) proceeds from selling an old vehicle; (c) commission received.
2. Loose tools are valued at $900 at the start of the year, $420 of tools are bought, and they are valued at $780 at the end. Calculate depreciation.
3. A vehicle costs $20,000 and is depreciated at 20% reducing balance. Calculate the depreciation for the second year.
4. State the journal entry for a loss on disposal of a non-current asset.
5. Electricity of $2,600 was paid in the year. $180 was owing at the start and $250 at the end. Calculate the charge to the statement of profit or loss.
6. Trade receivables are $18,000 and the allowance is to be 5%. The opening allowance is $1,000. State the effect on the statement of profit or loss.
7. Closing inventory is understated by $600. State the effect on profit for the year, and on next year’s gross profit.
8. 200 units cost $14 each and have a net realisable value of $11 each. Calculate their inventory value.

Answers: 1. (a) capital expenditure; (b) capital receipt; (c) revenue receipt. 2. $900 + $420 − $780 = $540. 3. First year $4,000, net book value $16,000; second year 20% × $16,000 = $3,200. 4. Dr statement of profit or loss, Cr disposal of non-current asset. 5. $2,600 − $180 + $250 = $2,670. 6. Required allowance 5% × $18,000 = $900, a decrease of $100, which is income in the statement of profit or loss. 7. Profit for the year is understated by $600; next year’s gross profit is overstated by $600 because opening inventory is understated. 8. 200 × $11 = $2,200 (net realisable value is lower than cost).