OxfordAQA A-Level Accounting: Accounting concepts used in the preparation of accounting records (9615) – Revision Notes

These notes condense section 3.1.5 Accounting concepts used in the preparation of accounting records of the OxfordAQA International AS and A-level Accounting (9615) specification, Version 1.2, for International AS exams May/June 2025 onwards and International A-level exams May/June 2026 onwards. It is International AS content, listed by the specification among the sections assessed on Paper 1: Introduction to Financial Accounting. For full explanations and longer worked examples, read the study guide first.

Course links: OxfordAQA A-Level Accounting hub | printable checklist | practice questions | free diagnostics. The older role of the accountant revision notes also touch on concepts alongside financial statements.

3.1.5 The ten general accounting concepts

Learn the specification’s names exactly. Each line gives the rule and the “so what” for the figures.

Concept	Rule in one line	Effect you should be able to state
Money measurement	Only items with a reliable money value are recorded	Goodwill built by staff or customers stays off the books
Duality	Two equal and opposite effects per transaction	Trial balance totals agree; assets always equal capital plus liabilities
Historic cost	Assets at the price originally paid	No upward revaluation for rising market prices
Going concern	Business assumed to continue	Carrying amounts, not liquidation prices
Accruals	Income and expenses in the period they relate to	Accruals, prepayments, income due, income received in advance, depreciation
Consistency	Same methods every period	Trends between years are meaningful
Prudence	Do not overstate assets or profit	Foreseeable losses now; gains only when realised
Materiality	Small items treated in the simplest way	Low-cost durable items expensed
Realisation	Revenue when earned (goods or service pass to the customer)	Not on order, not on deposit, not on cash receipt
Business entity	Business separate from owner	Owner’s private payments go to drawings; what the owner introduces goes to capital

Memory hook: three concepts deal with what is recorded (money measurement, business entity, materiality), three with value (historic cost, going concern, prudence), three with timing (accruals, realisation, consistency over time), and duality with how it is recorded.

3.1.5 Concepts applied to the named situations

Situation in the specification	Main concepts	Typical exam task
Preparation of financial statements	Accruals, realisation, business entity, prudence	Correct a draft profit
Asset valuation	Historic cost, going concern, prudence, money measurement	Explain why an asset is not at market value
Depreciation of non-current assets	Accruals, consistency, prudence	Calculate a charge; judge a change of method
Inventories (cost or NRV)	Prudence, historic cost, realisation	Value inventory item by item
Recording the purchase of non-current assets	Historic cost, accruals, materiality	Split capital and revenue expenditure
Recording transactions in ledger accounts	Duality, business entity, money measurement	Write the double entry and name the concept
Goods sold on a sale or return basis	Realisation, prudence	Remove unaccepted goods from sales; add to inventory at cost

Method in steps

Inventory: lower of cost and NRV

NRV per unit      = selling price - costs to complete and sell
Line value        = units x (cost or NRV, whichever is lower)
Closing inventory = sum of the line values
Write-down        = total cost - closing inventory   (cuts profit)

Small reminder: 36 scarves cost $11 each; they will sell for $14 but need $4 of re-labelling and postage. NRV = 14 - 4 = 10, below cost, so value = 36 × 10 = 360 dollars, a write-down of 36.

Sale or return at the year end

Identify goods still on approval: not accepted and the return date not passed. Then:

Item	Change
Revenue and the customer’s receivable	Both down by the selling price
Closing inventory	Up by cost (NRV if lower)
Profit for the year	Down by the profit margin on those goods (selling price - cost)

With a mark-up of m% on cost, cost = selling price / (1 + m/100).

Goods the customer has already accepted stay in revenue.

Capital or revenue expenditure

Capital (asset account): price, carriage in, fitting, alterations made
  before first use, legal costs of acquiring land or buildings
Revenue (income statement): anything that keeps the asset running:
  servicing, repairs, power, fuel, insurance, consumable parts

Ledger entries: which concept decides?

Business pays owner's home electricity, 210      Dr Drawings 210         Cr Bank 210
Owner transfers private car to the business      Dr Motor vehicles 7,800 Cr Capital 7,800
  at an agreed value of 7,800
Owner's chef is "worth a fortune" to the cafe    No entry

The first two are business entity; the third is money measurement. Every recorded entry has equal debits and credits, which is duality, so the trial balance still agrees.

Correcting a draft profit

Start from draft profit. Add back anything charged as an expense that does not belong to this period’s business costs: the owner’s private bills, amounts paid in advance, capital items. Deduct income not yet earned (advance payments, unaccepted sale or return goods), then charges not yet made (NRV write-downs, depreciation, unpaid expenses). Write the concept beside each line.

Must-know distinctions

• Realisation vs accruals. Realisation decides whether revenue has been earned; accruals decides which period income and expenses belong to.
• Prudence vs pessimism. Prudence means caution with estimates. It does not allow deliberate understating of profit.
• Historic cost vs NRV. Historic cost is the normal basis; NRV replaces it only when lower (inventory).
• Going concern vs closure. If the business is closing, use expected sale values instead.
• Capital vs drawings. Owner’s money or assets in = capital (credit). Owner’s private use = drawings (debit).
• Materiality is relative. The same amount may be material for one business and not another.
• Consistency vs never changing. A change is allowed for a fairer view, with disclosure, not to manage profit.

Quick self-test

1. The business bank account pays for the owner’s family wedding. Name the concept and the correct entry.
2. An item cost $48. It will sell for $55 after repairs costing $11. At what value per unit is it included in inventory?
3. 60 units cost $15 each and have an NRV of $16.50 each. Value the inventory.
4. Goods with a selling price of $2,800 were sent on sale or return and recorded as sales. Mark-up is 40% on cost. They were not accepted by the year end. By how much is profit overstated?
5. A $65 desk fan will last six years. How should it be recorded, and which concept allows this?
6. A van costs $21,000. Shelving fitted before use costs $1,400 and the first tank of fuel costs $90. What amount is debited to the vehicles account?
7. Year end 30 June. Rent of $9,600 for twelve months was paid on 1 March. How much is prepaid at the year end?
8. Commission of $650 was earned in March and received in April. The year ends on 31 March. In which year is it recorded, and how is it shown?
9. A business shows its machinery at what it would raise at auction next week, although it plans to keep trading. Which concept is broken?
10. A machine cost $18,400, will be sold for $1,600 at the end of a 7-year life, and is depreciated on the straight-line basis. Calculate the annual charge and name the concept behind it.
11. Which concept explains why the trial balance totals agree?

Answers

1. Business entity. Debit drawings, credit bank: it is not a business expense.
2. NRV = 55 - 11 = 44 dollars, lower than cost of 48, so 44 per unit.
3. NRV is above cost, so use cost: 60 × 15 = 900 dollars.
4. Cost = 2,800 / 1.40 = 2,000. Profit overstated by 2,800 - 2,000 = 800 dollars (realisation).
5. As an expense in the income statement; materiality.
6. 21,000 + 1,400 = 22,400 dollars (historic cost). The fuel is revenue expenditure.
7. March to June is 4 months used; 8 months prepaid: 8/12 × 9,600 = 6,400 dollars (accruals).
8. The year to 31 March; shown as income due, an other receivable (accruals).
9. Going concern (assets should be at cost less depreciation).
10. (18,400 - 1,600) / 7 = 2,400 dollars per year; accruals (cost matched to the years that benefit).
11. Duality.

Where marks are usually lost

• Naming a concept but not explaining its effect on profit, assets or liabilities.
• Using “cost” loosely when a question is about net realisable value, or mixing up the two.
• Valuing inventory from one grand total of cost and one of NRV.
• Taking sale or return goods out of revenue but forgetting to add their cost to closing inventory.
• Adding sale or return goods back at selling price, or removing goods the customer has already accepted.
• Working out cost from a mark-up by multiplying by (1 - m%) instead of dividing by (1 + m%).
• Recording a customer deposit as revenue before the goods or service have been supplied.
• Charging the owner’s household bills to business expense accounts, or crediting drawings.
• Writing that prudence means “keeping profit low to be safe”.
• Defending a change of depreciation method only because it raises profit.

Official syllabus

OxfordAQA, International AS and A-level Accounting (9615) Specification, Version 1.2, for International AS exams May/June 2025 onwards and International A-level exams May/June 2026 onwards: section 3.1.5 Accounting concepts used in the preparation of accounting records.