OxfordAQA IGCSE Accounting: General accounting concepts and their use (9215) – Revision Notes

These notes condense section 3.3 of the OxfordAQA International GCSE Accounting (9215) specification, version 1.2 (exams from May/June 2026 onwards): the ten general accounting concepts and their use in the listed situations. For full explanations read the study guide, then test yourself with the practice questions. Also see the course hub, the printable checklist and the free diagnostics. Amounts are in dollars; all businesses and figures are invented.

The ten concepts at a glance

Concept	One-line meaning	Quick test	Example of use
Business entity	Business and owner are separate	Is it the business’s own transaction?	Owner’s personal bill is drawings
Money measurement	Record only what has a money value	Can I put a dollar figure on it?	Staff morale is not recorded
Duality	Each transaction has two equal effects	What is the debit and what is the credit?	Equipment bought by cheque: debit equipment, credit bank
Historic cost	Record at the price paid	What did it cost when bought?	Land bought for 30,000 stays at 30,000
Going concern	Business will carry on trading	Is closure expected?	Prepayments carried forward
Accruals	Match income and expenses to the period	When was it earned or used?	Unpaid wages are an other payable
Consistency	Same methods each period	Did the method change?	Same depreciation method each year
Prudence	Do not overstate profit or assets	Is there a foreseeable loss?	Provision for doubtful debts
Materiality	Only significant items need full treatment	Would it change a decision?	A 9 stapler is expensed
Realisation	Revenue earned on delivery or service	Has the customer become liable to pay?	Order in March, delivery in April: April revenue

Must-know distinctions

• Accruals versus prudence: accruals puts the item in the right year; prudence chooses the cautious figure when the amount is uncertain.
• Business entity versus money measurement: the first decides whose transaction it is, the second decides whether it has a money value.
• Historic cost versus net realisable value: assets generally stay at cost, but inventory is written down to net realisable value when that is lower.
• Consistency versus prudence: consistency means keeping a method; it does not mean never correcting a method that is wrong.
• Realisation versus cash received: a credit sale is revenue on delivery, even though no cash has arrived.
• Going concern versus break-up: if closure is expected, assets would be valued at what they would sell for.

The six situations in the specification

Situation	Concepts that drive it	The rule to remember
Preparation of financial statements	Accruals, consistency, realisation, business entity	Match to the year, same methods, only real sales, only business items
Asset valuation	Historic cost, prudence, going concern	Cost less depreciation; receivables less provision; inventory at lower figure
Depreciation of non-current assets	Accruals, consistency, historic cost	Spread cost over use; same method each year; non-cash expense
Inventories	Prudence	Cost or net realisable value, whichever is lower, for each line
Purchase of non-current assets	Historic cost, materiality	Capitalise all costs of bringing it into use; expense trivial items
Transactions in ledger accounts	Duality, accruals, business entity	Two equal entries; right period; business items only

Formulas and methods

Net realisable value = expected selling price - costs to make saleable - selling costs.

Straight line depreciation per year = (cost - residual value) / number of years.

Reducing balance depreciation per year = rate × net book value at the start of the year.

Net book value = cost - accumulated depreciation.

Expense for the year = cash paid + closing amount owed - opening amount owed (for an accrued expense). For a prepaid expense: cash paid + opening prepayment - closing prepayment.

Method: valuing inventory

1. List each line separately.
2. Work out net realisable value for each line.
3. For each line, take cost or net realisable value, whichever is lower.
4. Add the chosen figures. The total is closing inventory.
5. Write down only by the amount the lower figure falls below cost.

Method: choosing the concept in an explain question

1. Identify what is being recorded or valued.
2. Match it to a concept from the ten.
3. State what the concept requires.
4. Apply it to the figures in the question.
5. State the effect on profit or on the asset’s value.

Worked reminders

Reminder 1: prepayment and accrual. Orrelby Hardware pays rent of 7,200 on 1 October for 12 months, and its year ends 31 December. Three months are used: 7,200 × 3/12 = 1,800 is the expense, and 5,400 is carried forward as a prepayment. This is accruals, with going concern supporting the carry forward.

Reminder 2: two depreciation methods. Orrelby Hardware buys a delivery van for 9,600 with a residual value of 1,200 and a life of six years. Straight line: (9,600 - 1,200) / 6 = 1,400 each year. Reducing balance at 20%: year 1 is 20% of 9,600 = 1,920, year 2 is 20% of (9,600 - 1,920) = 1,536. Consistency means using the same method each year.

Reminder 3: net realisable value. A line of paint is bought for 70 per unit but is damaged. It can be sold for 70 after spending 12 per unit on repair. Net realisable value is 70 - 12 = 58 per unit, which is below cost, so each unit is valued at 58.

Reminder 4: capital or revenue. Zandry Foods pays 2,500 for a freezer and 150 to have it delivered, and also pays 90 for repairs to an old freezer. The new freezer is capital expenditure at 2,650 (debit freezers, credit bank). The repair is revenue expenditure, so it goes to the income statement.

Reminder 5: duality. Zandry Foods takes goods costing 200 for the owner’s own use. By business entity this is not a business expense. Debit drawings 200, credit purchases 200 (or inventory, depending on the method). Both effects are equal, which is duality.

Effect on profit of common treatments

Treatment	Concept	Effect on profit for the year
Inventory written down to net realisable value	Prudence	Lower, because cost of sales rises
Expense accrued at the year end	Accruals	Lower, because the expense rises
Expense prepaid at the year end	Accruals	Higher than if the whole payment were charged
Provision for doubtful debts increased	Prudence	Lower, by the increase only
Repair wrongly treated as capital expenditure	Breaks the capital and revenue rule	Overstated in the year
Depreciation charged	Accruals	Lower, with no cash movement

Memory aid: accruals asks “which period?”, prudence asks “what is the cautious figure?”, and consistency asks “did I use the same method as last year?”.

Quick self-test

1. Which concept is breached if an owner’s holiday is paid from the business bank account and charged as an expense?
2. Name the concept that explains why a lorry bought two years ago for 30,000 is not shown at its current market price.
3. Which concept requires revenue to be recorded when goods are delivered?
4. A business has valued inventory at selling price. Which concept does this go against, and in which direction does it distort profit?
5. Cost 450, selling price 520, selling costs 90. What value is used for inventory?
6. Calculate straight line depreciation for an asset costing 12,500, residual value 2,500, life five years.
7. Calculate the year 2 reducing balance charge at 40% on an asset costing 5,000.
8. Insurance of 2,400 for 12 months was paid on 1 July. What is the prepayment at 31 December?
9. Which concept allows a business to expense a pack of printer paper rather than record it as inventory?
10. Why is a provision for doubtful debts an example of prudence?
11. State two reasons why non-current assets depreciate.
12. Which concept supports the preparation of statements on the basis that the business will continue?

Answers

1. Business entity.
2. Historic cost.
3. Realisation.
4. Prudence, because selling price includes profit not yet realised; profit is overstated.
5. Net realisable value is 520 - 90 = 430, which is below cost, so 430.
6. (12,500 - 2,500) / 5 = 2,000 per year.
7. Year 1: 40% of 5,000 = 2,000. Year 2: 40% of 3,000 = 1,200.
8. Six months remain: 2,400 × 6/12 = 1,200.
9. Materiality.
10. It recognises a probable loss on receivables before the debt is actually written off.
11. Two from wear and tear, obsolescence, the passage of time, and use.
12. Going concern.

Where marks are usually lost

• Writing out the definition but not linking it to the facts in the question.
• Choosing accruals when the answer is prudence (or the reverse).
• Valuing inventory as one total instead of line by line.
• Forgetting selling costs when finding net realisable value.
• Writing “depreciation is a cash cost” or “depreciation puts money aside”.
• Treating all costs of an asset purchase as revenue expenditure; delivery and installation of a new asset are part of its cost.
• Using the original cost as the base for reducing balance every year.
• Showing the prepayment as an expense, or the accrual as an asset.
• Saying the business “owns” the owner’s personal assets, which ignores business entity.

Frequently asked questions

How many general accounting concepts are in OxfordAQA International GCSE Accounting 9215? Ten. The specification also names six situations in which they are applied: preparation of financial statements, asset valuation, depreciation of non-current assets, inventories, purchase of non-current assets and transactions in ledger accounts.

What is the difference between the accruals and prudence concepts? Accruals puts each item in the right year. Prudence chooses the cautious figure when an amount is uncertain.

What is the difference between business entity and money measurement? Business entity decides whose transaction it is, separating the business from its owner. Money measurement decides whether an item can be recorded, because it must have a money value.

How is net realisable value calculated? Net realisable value = expected selling price − costs to make the goods saleable − selling costs. Inventory is valued line by line at the lower of cost and net realisable value.

Is depreciation a cash cost? No. Writing that depreciation is a cash cost, or that it puts money aside, is a common mistake; it spreads the cost of an asset over its useful life without moving any cash.

Official syllabus

Source: OxfordAQA International GCSE Accounting (9215), specification version 1.2, for exams from May/June 2026 onwards, section 3.3 Development of the accounting model (general accounting concepts and their use).