OxfordAQA A-Level Accounting: Preparation of financial statements of sole traders (9615)

This study guide teaches section 3.1.6, Preparation of financial statements of sole traders, from 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. The specification lists 3.1.6 among the sections assessed in Paper 1: Introduction to Financial Accounting. All figures below are in dollars and every business is invented.

Use it with the revision notes and the practice questions. For what a sole trader is and how it differs from other ownership types, see Types of business organisation. The course hub is at /boards/oxfordaqa/a-level/accounting/, the printable checklist at /checklists/oxfordaqa/a-level/accounting/, and you can test yourself first with a free diagnostic.

What section 3.1.6 covers

Specification content	What you must be able to do
The use of concepts in the preparation of financial statements	Record other payables and other receivables, depreciation (straight line and reducing balance), disposal of non-current assets, provision for doubtful debts, irrecoverable debts, recovery of irrecoverable debts, income due, income received in advance, goods taken for own use, goods on sale or return, and inventory
Preparing financial statements of sole traders from ledger accounts, including adjustments	Write up the ledger accounts for these items and transfer them to the income statement, for service businesses and trading businesses
Preparing income statements and statements of financial position from a trial balance, including adjustments	Start from a trial balance and year-end notes and produce an adjusted income statement and statement of financial position

FIFO, AVCO and LIFO are outside this topic: the specification states that these methods of inventory valuation will not be examined.

Why the adjustments exist

A trial balance shows what was recorded. The concepts from section 3.1.5 decide what should be reported.

Adjustment	Main concept behind it
Other payables, other receivables, income due, income received in advance	Accruals: income and expenses belong to the period they relate to, not the period cash moves
Depreciation	Accruals (spreading cost over the years the asset is used) and consistency (same method each year)
Provision for doubtful debts, inventory at the lower of cost and net realisable value	Prudence: do not overstate assets or profit
Goods on sale or return	Realisation: no sale until the customer accepts the goods
Goods taken for own use	Business entity: the owner and the business are separate

Other payables and other receivables

An expense owing at the year end is an other payable (a current liability). An expense paid in advance is an other receivable (a current asset).

Worked example (ledger account). Insurance at 1 January 2025 was owing, 385. During 2025 the business paid 4,860. At 31 December 2025, 1,140 of that was for 2026.

                      Insurance
2025              Dr           2025                 Cr
Bank           4,860           1 Jan Balance b/d   385
                               Income statement  3,335
                               31 Dec Balance c/d 1,140
               4,860                             4,860
2026
1 Jan Balance b/d 1,140

The charge is 4,860 - 385 - 1,140 = 3,335. The 385 paid off last year’s debt, so it is not a 2025 cost. The 1,140 debit balance carried down is an other receivable in the statement of financial position.

Income due and income received in advance

Income earned but not received is income due, shown with other receivables. Income received before it is earned is income received in advance, shown with other payables.

Worked example. A business earns commission. At 1 January 2025 it had received 270 in advance for 2025 work. It received 7,350 during 2025, and 480 was due at 31 December 2025.

                 Commission receivable
2025              Dr           2025                 Cr
Income statement 8,100         1 Jan Balance b/d   270
                               Bank              7,350
                               31 Dec Balance c/d  480
                 8,100                           8,100
2026
1 Jan Balance b/d  480

Income = 7,350 + 270 + 480 = 8,100. The 480 debit balance is income due, an other receivable.

Depreciation

• Straight line: (cost - residual value) / useful life. The same charge each year.
• Reducing balance: rate x carrying amount at the start of the year. The charge falls each year.

Double entry: debit the income statement (depreciation), credit provision for depreciation. In the statement of financial position, show cost, accumulated depreciation and carrying amount.

Worked example. A machine costs 32,000, residual value 2,000, life 6 years: (32,000 - 2,000) / 6 = 5,000 a year.

A vehicle costs 30,400 and is depreciated at 25% reducing balance:

Year	Carrying amount at start	Charge (25%)	Accumulated depreciation
1	30,400	7,600	7,600
2	22,800	5,700	13,300
3	17,100	4,275	17,575

Carrying amount after three years: 30,400 - 17,575 = 12,825.

Disposal of non-current assets

Use a disposal account. Transfer in the cost, transfer out the accumulated depreciation and the proceeds. The balance is the profit or loss on disposal, which goes to the income statement.

Worked example. The machine above was bought on 1 January 2022 and sold on 1 October 2025 for 13,500. Policy: a full year’s charge in the year of purchase and none in the year of disposal. Charges for 2022, 2023 and 2024 total 3 x 5,000 = 15,000.

                     Disposal of machinery
Machinery (cost)  32,000    Provision for depreciation  15,000
                            Bank                        13,500
                            Income statement (loss)      3,500
                  32,000                                32,000

Carrying amount 32,000 - 15,000 = 17,000; proceeds 13,500; loss 3,500, shown as an expense.

Irrecoverable debts, their recovery and the provision for doubtful debts

• Irrecoverable debt written off: debit irrecoverable debts (expense), credit the customer’s account. Trade receivables fall.
• Recovery of an irrecoverable debt: reinstate the debt (debit the customer, credit irrecoverable debts recovered), then record the cash (debit bank, credit the customer). Irrecoverable debts recovered is income in the income statement.
• Provision for doubtful debts: only the change goes to the income statement. An increase is an expense; a decrease is income. The full provision is deducted from trade receivables in the statement of financial position.

Worked example. Trade receivables are 52,400 before writing off a debt of 1,400. The provision is to be 4% of trade receivables; it was 1,850 last year.

• Trade receivables after write-off: 52,400 - 1,400 = 51,000.
• New provision: 4% x 51,000 = 2,040. Increase: 2,040 - 1,850 = 190, an expense.
• Statement of financial position: 51,000 - 2,040 = 48,960.

Always write off irrecoverable debts before calculating the provision.

Goods for own use, sale or return, and inventory

Goods taken for own use. Record at cost: debit drawings, credit purchases. Purchases fall, so cost of sales falls.

Goods on sale or return. If goods sent to a customer on sale or return have been recorded as a sale but the customer has not accepted them by the year end, reverse it. Remove the selling price from revenue and trade receivables, and include the goods in inventory at cost. Goods sent at a selling price of 2,700, priced at cost plus 50%, cost 2,700 / 1.5 = 1,800.

Inventory. Value at the lower of cost and net realisable value (NRV). NRV is the expected selling price less costs to finish and sell. An item cost 950 and can be sold for 900 only after a repair costing 200: NRV 700, so it is valued at 700, a write-down of 250.

Full worked example: trial balance to statements

Farida Noor trades as Noor Lighting. Trial balance at 30 September 2026:

Account	Dr	Cr
Revenue		214,600
Purchases / inventory 1 October 2025	131,900 / 17,300
Wages	36,450
Rent and rates / heat and light	13,200 / 4,380
General expenses / irrecoverable debts	2,970 / 520
Loan interest	1,600
Fixtures and fittings: cost / provision for depreciation	46,000	18,400
Delivery vehicle: cost / provision for depreciation	28,800	12,960
Trade receivables / trade payables	24,700	15,850
Provision for doubtful debts		760
Bank	6,140
Loan (repayable 2030)		20,000
Drawings / capital	24,000	55,390
Totals	337,960	337,960

Notes at 30 September 2026: closing inventory at cost 19,450 includes damaged lamps costing 1,100 with NRV 640; Farida took goods costing 600 for her own use (not recorded); heat and light owing 465; rent and rates prepaid 1,100; a further debt of 700 is irrecoverable; provision for doubtful debts 5% of trade receivables; depreciation on fixtures 10% straight line on cost and on the vehicle 30% reducing balance.

Workings. Inventory 19,450 - 460 = 18,990. Purchases 131,900 - 600 = 131,300. Receivables 24,700 - 700 = 24,000; provision 1,200, increase 440. Fixtures 4,600; vehicle 30% x 15,840 = 4,752.

Noor Lighting
Income statement for the year ended 30 September 2026
Revenue                                      214,600
Less cost of sales
  Inventory 1 October 2025        17,300
  Purchases                      131,300
                                 148,600
  Less inventory 30 Sept 2026     18,990     129,610
Gross profit                                  84,990
Less expenses
  Wages                           36,450
  Rent and rates                  12,100
  Heat and light                   4,845
  General expenses                 2,970
  Irrecoverable debts              1,220
  Increase in provision              440
  Depreciation: fixtures           4,600
  Depreciation: vehicle            4,752
  Loan interest                    1,600      68,977
Profit for the year                           16,013

Statement of financial position at 30 September 2026
Non-current assets         Cost   Acc. dep.   Carrying
  Fixtures and fittings  46,000    23,000     23,000
  Delivery vehicle       28,800    17,712     11,088
                                              34,088
Current assets
  Inventory                        18,990
  Trade receivables      24,000
  Less provision          1,200    22,800
  Other receivables                 1,100
  Bank                              6,140     49,030
Total assets                                  83,118
Equity
  Capital                                     55,390
  Add profit for the year                     16,013
  Less drawings (24,000 + 600)                24,600
                                              46,803
Non-current liabilities
  Loan                                        20,000
Current liabilities
  Trade payables                   15,850
  Other payables                      465     16,315
Total equity and liabilities                  83,118

A service business follows the same pattern but has no cost of sales or gross profit: list fees or revenue, add other income, deduct expenses. Question 10 in the practice set is a service business.

Common errors

• Adding last year’s accrual to this year’s charge instead of deducting it.
• Charging the whole new provision for doubtful debts, not just the change.
• Calculating reducing balance on cost rather than carrying amount.
• Recording goods for own use at selling price, or forgetting to add them to drawings.
• Leaving goods on sale or return in revenue, or adding them to inventory at selling price.
• Showing income received in advance as a current asset; it is an other payable.

For a step-by-step adjusting routine, see the exam preparation guide. Then try the practice questions and check gaps with the 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 3.1.6 Preparation of financial statements of sole traders. Published by OxfordAQA.