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

This guide teaches 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, so every candidate needs it. The specification lists section 3.1.5 among the content assessed on Paper 1: Introduction to Financial Accounting, and the same concepts drive every adjustment you make in 3.1.6 when you prepare a sole trader’s financial statements.

Start from the OxfordAQA A-Level Accounting hub and tick the topic off on the printable checklist. For fast recall use the revision notes, then test yourself with the practice questions. See also the role of the accountant guide. Amounts are in US dollars.

What this topic covers

Specification 3.1.5	What you must be able to do
General accounting concepts	Explain money measurement, duality, historic cost, going concern, accruals, consistency, prudence, materiality, realisation and business entity
The use of accounting concepts in a variety of situations	Apply them to: preparation of financial statements; asset valuation; depreciation of non-current assets; inventories (cost or net realisable value); recording the purchase of non-current assets; recording transactions in ledger accounts; goods sold on a sale or return basis

There are no International A-level only statements in this section.

The ten general accounting concepts

In answers, pair each concept with its effect: which figure changes, and in which direction.

Concept	What it says	Where you see it in the accounts
Money measurement	Record only items that can be given a reliable money value	Staff morale, a trusted brand or a good supplier relationship are left out
Duality	Every transaction has two equal effects	Each item is entered once as a debit and once as a credit, so the accounting equation holds
Historic cost	Record assets at the price paid when acquired	Land stays at its purchase price even if its market value rises
Going concern	Assume the business will keep trading for the foreseeable future	Non-current assets carried at cost less accumulated depreciation, not at forced-sale prices
Accruals	Match income and expenses to the period they relate to, not when cash moves	Accruals, prepayments, income due, income received in advance, depreciation
Consistency	Use the same methods from one period to the next	Same depreciation method and rate each year
Prudence	Do not overstate assets or profit; recognise foreseeable losses now	Provision for doubtful debts; inventory at net realisable value if lower
Materiality	Items too small to affect users’ decisions can be treated in the simplest way	A $20 extension lead is charged as an expense, not depreciated
Realisation	Recognise revenue when it is earned, normally when goods or services pass to the customer	No revenue on receiving an order or a deposit
Business entity	The business is separate from its owner	Private payments for the owner are drawings; resources the owner introduces are capital

Prudence means caution, not pessimism: it never lets you invent losses. Materiality has no fixed cut-off; it depends on the size of the business.

Situation 1: preparation of financial statements

Year-end adjustments are where the concepts turn into figures. Work through each item, naming the concept and the direction of the change to profit.

Worked example. Juniper Street Bakery’s year ends on 31 December 2025. Draft profit is $64,300. Three items need correcting.

1. Insurance of $4,800 was paid on 1 October 2025 for the year to 30 September 2026. All of it was charged as an expense.
2. On 29 December a catering client paid $1,250 in advance for an order to be supplied on 15 January 2026. It was credited to revenue.
3. The owner’s home broadband bill of $700 was paid from the business bank account and debited to telephone expenses.

All figures in $
Draft profit for the year                         64,300
Add:  insurance prepaid 9/12 x 4,800                3,600   (accruals)
Less: advance payment not yet earned               (1,250)  (realisation)
Add:  owner's broadband bill removed                  700   (business entity)
Corrected profit for the year                     67,350

In the statement of financial position the $3,600 is a prepayment (other receivables), the advance payment is a current liability until the order is supplied, and drawings rise by the $700 broadband bill.

Situation 2: asset valuation

Under historic cost the starting figure is what was actually paid, a number anyone can check against the invoice. Going concern explains why it is not swapped for a liquidation price: the business expects to keep the asset working, so a forced-sale figure is irrelevant. So a warehouse bought ten years ago for $90,000 stays at cost (less any depreciation) even if it could now be sold for $140,000. Recording the higher figure would show a gain that has not been realised.

If the owner decides to close the business, going concern no longer holds. Assets are then shown at what they are expected to fetch when sold, which may be well below their carrying amount.

Prudence works only downwards. If an asset will bring in less than its book figure (goods that have been spoiled, say, or a customer who has stopped paying), the book figure is cut; it is never raised to a higher market value. Money measurement explains what is missing altogether: a dependable network of suppliers is valuable, but it has no reliable money value.

Situation 3: depreciation of non-current assets

Spreading an asset’s cost over the years it is used is the accruals concept: each year bears a share of the cost of the asset that helped earn that year’s revenue. Once a method, rate and life are chosen, consistency keeps them in place so years can be compared, and prudence asks for honest estimates of life and residual value.

Worked example. A printing firm buys a guillotine for $27,600. It expects to use it for 6 years and sell it for $2,400 at the end. It uses the straight-line method.

Annual depreciation = (27,600 - 2,400) / 6 = 25,200 / 6 = $4,200 per year

Midway through a difficult year the owner asks whether the guillotine’s life could be stretched to 9 years.

Revised charge = 25,200 / 9 = $2,800 per year
Profit would rise by 4,200 - 2,800 = $1,400

Nothing about the guillotine has changed, so this breaches consistency: the change is being made to improve profit, not to give a fairer view. A change is justified only when the old estimate is genuinely wrong, and users should be told about it. The straight-line and reducing balance calculations themselves are part of 3.1.6.

Situation 4: inventories at cost or net realisable value

Inventory is valued at the lower of cost and net realisable value (NRV), comparing item by item.

NRV = expected selling price - any costs still needed to complete and sell the item

The two halves of the rule come from different concepts. Cutting to NRV when it is lower is prudence: a loss that can already be seen is taken now. Never going above cost, however profitable the goods look, is historic cost with realisation: the profit belongs to the period of sale.

Worked example. Coralbay Electronics holds three product lines at its year end (all figures in $).

Line	Units	Cost per unit	Selling price	Costs to sell	NRV per unit	Value used
Headphones	80	24.00	39.00	3.00	36.00	80 × 24.00 = 1,920
Speakers (water-damaged)	25	60.00	55.00	12.00 (repair)	43.00	25 × 43.00 = 1,075
Phone chargers	150	7.50	8.00	1.20 (commission)	6.80	150 × 6.80 = 1,020
Total						4,015

Total cost is 1,920 + 1,500 + 1,125 = $4,545, so inventory is written down by $530, and cost of sales rises (profit falls) by the same amount. Comparing only the totals (NRV 4,975 against cost 4,545) would keep everything at cost and let the headphones’ margin hide the other losses. A note in section 3.1.6 of the specification says the FIFO, AVCO and LIFO methods of inventory valuation will not be examined.

Situation 5: recording the purchase of non-current assets

The asset account is debited with full historic cost: the price plus whatever had to be spent before the asset could do its job, such as carriage, fitting and alterations. Spending that keeps it going once in use is revenue expenditure, matched to its year under accruals.

Worked example. Pinecrest Joinery buys a saw bench (all figures in $).

Item	Amount	Treatment
Purchase price	14,200	Capital
Delivery to the workshop	350	Capital
Installation and wiring	480	Capital
Safety guard fitted before first use	270	Capital
First service after six months	190	Revenue
Replacement cutting blades	85	Revenue

The ledger entry is debit Machinery $15,300, credit Bank (or the supplier). The $275 of revenue items go to repairs and maintenance. Materiality covers the borderline: drill bits costing $45 will last several years, yet depreciating them would change no user’s decision, so they go straight to expenses.

Situation 6: recording transactions in ledger accounts

Three concepts sit behind every ledger entry. Duality supplies the debit and its matching credit, business entity filters out the owner’s private affairs, and money measurement screens out events with no reliable money amount.

(a) Owner brings in a private laptop worth $900 for business use
    Dr Office equipment 900      Cr Capital 900      (business entity: owner's investment)
(b) Business bank pays the owner's private school fees of $1,500
    Dr Drawings 1,500            Cr Bank 1,500       (business entity: not an expense)
(c) The shop wins a local "best service" award
    No entry                                         (money measurement)

Situation 7: goods sold on a sale or return basis

On sale or return, ownership does not pass when the goods leave the seller. The customer becomes the owner by accepting them, or by holding them beyond the agreed return date, and until then realisation says there is no sale. Goods still out on approval at the year end are taken back out of revenue and the customer’s balance, and counted in closing inventory at cost (NRV if lower, under prudence).

Worked example. A wholesaler sent goods with a selling price of $5,200 on sale or return and recorded the whole amount as a credit sale. Its mark-up is 30% on cost. By the year end the customer had accepted goods priced at $1,950; the rest were still held on approval.

Goods not accepted at selling price  = 5,200 - 1,950 = $3,250
Their cost                           = 3,250 / 1.30  = $2,500
Correcting entry:  Dr Revenue 3,250   Cr Trade receivables (customer) 3,250
Closing inventory increases by $2,500
Profit falls by 3,250 - 2,500 = $750

The $1,950 of accepted goods stays as revenue: that sale has been realised.

When concepts conflict

• Realisation and prudence. Gains wait until they are earned, but a loss that can already be foreseen is recognised now. That imbalance is why inventory can fall to NRV but never rise above cost.
• Materiality and precision. Applying every rule to a $20 item costs more than it is worth, so small items are simplified.

Common errors

• Revaluing an asset upwards because its market price has risen; historic cost forbids it.
• Setting one total NRV against one total cost, so a profitable line hides a loss-making one.
• Putting unaccepted sale or return goods into inventory at their selling price.
• Reversing the whole sale or return consignment, including goods already accepted.
• Charging carriage or fitting to expenses, or adding servicing to the asset’s cost.

Where to go next

The exam preparation guide shows how the four papers fit together. To find weak spots across the course, try the free diagnostics.

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.