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

This guide covers the first two rows of section 3.3 (Development of the accounting model) in the OxfordAQA International GCSE Accounting (9215) specification, version 1.2, for exams from May/June 2026 onwards: the ten general accounting concepts used in preparing accounting records, and their use in the situations the specification lists. All amounts on this page are in dollars. Business names and figures are invented.

Use it with the revision notes and the practice questions. The course hub is at OxfordAQA IGCSE Accounting, the printable checklist lists every outcome, and the free diagnostics show which topics to work on first. For how the two papers are organised, see the exam preparation guide.

What the specification asks for

Specification content	What you need to be able to do	Section of this guide
General accounting concepts used in the preparation of accounting records	Know and explain each of the ten named concepts, from business entity through to realisation	Ten concepts below
Use of concepts: preparation of financial statements	Say which concept explains a treatment in the statements	Situation 1
Use of concepts: asset valuation	Explain why assets are shown at the figures they are	Situation 2
Use of concepts: depreciation of non-current assets	Link depreciation to accruals, consistency and historic cost	Situation 3
Use of concepts: inventories (cost or net realisable value as the basis for valuation)	Value inventory at whichever is lower, cost or net realisable value	Situation 4
Use of concepts: recording the purchase of non-current assets	Decide what is capitalised and what is expensed	Situation 5
Use of concepts: recording transactions in ledger accounts	Apply duality and the other concepts when posting	Situation 6

The specification also lists adjustments (for example other payables and receivables, income due or received in advance, doubtful and irrecoverable debts, depreciation, disposals and inventory). They appear here only as illustrations of the concepts.

The ten concepts

Business entity

The owner and the business are two different parties for accounting. Only the business’s own dealings belong in its books. If Ms Marnham, who runs Marnham Cycles, pays her family’s grocery bill from the business bank account, that is not a business expense. It is recorded as drawings, which reduce her capital.

Money measurement

Only items that can be measured in money are recorded. A new repair mechanic’s skill, the shop’s good reputation and a dispute with a supplier have no recorded value. A purchase of tyres for 640 is recorded because it has a money amount. The limitation is that the statements leave out things that matter to the business’s value.

Duality

Every transaction has two effects, a debit in one account and an equal credit in another. This is why the trial balance should balance. Buying a till for 450 by bank transfer is recorded as a debit in the equipment account and a credit in the bank account.

Historic cost

Assets are recorded at the price actually paid when they were bought, not at what they might be worth later. Marnham Cycles buys its workshop land for 40,000. Its value is now estimated at 65,000, but the statement of financial position still shows 40,000. The figure is objective and can be checked against an invoice, but it can become out of date.

Going concern

Unless evidence says otherwise, the accounts are prepared on the footing that trading will carry on into the foreseeable future. This is why assets such as equipment are valued on the basis of being used, and why a prepayment is carried forward as an asset. If a business were about to close, assets would instead be valued at what they would fetch if sold.

Accruals

Each item of revenue and expense belongs to the year it relates to, whenever the cash happens to move. An expense used but unpaid at the year end is an other payable. Paying for something in advance creates an other receivable (a prepayment). The same idea applies to income due and income received in advance.

Consistency

The same methods are used from one period to the next. If a business uses straight line depreciation on vehicles this year, it should not switch to reducing balance next year simply because it gives a more attractive profit. A change is possible, but only for a good reason and with the effect disclosed. Consistency makes year-to-year comparison fair.

Prudence

Do not overstate profit or assets and do not understate expenses or liabilities. Recognise losses as soon as they are foreseen, but do not recognise gains until they are realised. Both the provision for doubtful debts and the write-down of inventory below cost come from prudence. Prudence does not allow a business to deliberately understate profit.

Materiality

An item is material when a mistake in it or its omission could alter what a reader of the statements decides. Trivial items are treated in the simplest way. A stapler costing 14 is expensed at once instead of being capitalised and depreciated, because the effect on profit is too small to matter. A larger business will usually treat larger sums as immaterial.

Realisation

Revenue is recognised when the goods are delivered or the service is performed and the customer becomes liable to pay, not when the order is placed and not necessarily when the cash arrives. An order received in December for goods delivered in January is January revenue.

The concepts in use

Situation 1: preparation of financial statements

The statements bring many concepts together. The income statement matches expenses to the year (accruals), uses the same methods each year (consistency), and does not anticipate profit from sales not yet made (realisation). The statement of financial position shows assets at historic cost less depreciation, assumes going concern, and shows only business items (business entity).

Worked example. Vessling Print’s year ends on 31 December. It paid insurance of 3,600 on 1 November, covering 12 months. The expense belonging to the current year is 3,600 × 2/12 = 600. The remaining 3,000 relates to the next ten months, so it is shown as an other receivable (prepayment) in current assets. At year end the business also owes 640 for electricity. In the income statement the expense is increased by 640, and 640 is shown as an other payable in current liabilities. Accruals explains both; the going concern assumption explains why the prepayment is carried forward as an asset.

Situation 2: asset valuation

Non-current assets appear at historic cost less accumulated depreciation, which is their net book value. Net book value is an accounting figure, not a market value. Receivables are shown after deducting the provision for doubtful debts (prudence). Inventory is shown at the lower of cost and net realisable value. Money measurement limits what can be valued, and historic cost explains why land bought long ago is not revalued.

Situation 3: depreciation of non-current assets

Depreciation spreads the cost of an asset over the years it is used, so each year bears a fair share of the cost (accruals). It is a non-cash expense, so charging it does not take money out of the bank. Assets lose value through wear and tear, obsolescence, the passage of time and use. Historic cost is the starting point for the calculation, and consistency requires the same method year after year.

Worked example. Marnham Cycles buys a machine for 18,000 and expects to scrap it after five years for 3,000.

Method	Calculation	Year 1	Year 2	Net book value after year 2
Straight line	(18,000 - 3,000) / 5	3,000	3,000	12,000
Reducing balance 25%	25% of net book value	4,500	3,375	10,125

Straight line gives the same charge every year; reducing balance gives a bigger charge early on. Either is acceptable. Applying the chosen one every year is consistency.

Situation 4: inventories at cost or net realisable value

Net realisable value is the expected selling price less any costs needed to make the item saleable and to sell it. Each line of inventory is taken at cost or net realisable value, whichever is lower. This is prudence: a loss is recognised as soon as it is foreseen, but a gain is not.

Worked example. Marnham Cycles has two lines in inventory at the year end.

Line	Cost	Selling price	Cost to repair	Net realisable value	Value used
Frames, batch A	1,200	1,300	350	950	950
Wheels, batch B	800	1,100	nil	1,100	800
Total	2,000				1,750

Batch A is written down by 250 and batch B stays at cost. Closing inventory is 1,750, so cost of sales is 250 higher and profit is 250 lower than if cost had been used for both. Do not add the two net realisable values: the rule applies line by line.

Situation 5: recording the purchase of non-current assets

Capital expenditure buys or improves a non-current asset and is recorded in an asset account. Revenue expenditure keeps the business running and goes to the income statement. Under historic cost, all costs needed to bring the asset into use are part of its cost.

Worked example. Marnham Cycles buys a machine for 18,000, pays 300 delivery and 500 installation, and pays 120 to service another machine. The machine’s cost is 18,000 + 300 + 500 = 18,800, and the 120 service is revenue expenditure. The entry is a debit to machinery of 18,800 and a credit to bank of 18,800. A purchase of a stapler for 14 would be expensed because of materiality.

Situation 6: recording transactions in ledger accounts

Duality drives every posting. Business entity decides what is posted, money measurement decides whether it can be posted, and accruals decides which period it belongs to. Closing balances are carried down to become the opening balances of the next period (going concern).

Worked example. Vessling Print’s electricity account for the year. It owed 380 at the start, paid 2,260 during the year and owes 640 at the end.

Posting the account on the usual two-sided layout:

Debit side		Credit side
Bank	2,260	Balance b/d (1 Jan)	380
Balance c/d	640	Income statement transfer	2,520
Total	2,900	Total	2,900

The charge of 2,520 is 2,260 + 640 - 380. The other side of each posting is a credit or debit elsewhere, which is duality.

Provision for doubtful debts: prudence in action

If trade receivables are 12,000 and the business estimates that 5% may not pay, the provision is 600. The income statement carries an expense of 600 (or just the increase if a provision already existed) and receivables are shown at 11,400. Prudence recognises the possible loss now, before it is certain.

Common errors

1. Writing a definition without applying it. Questions usually describe a situation, so name the concept and link it to the facts.
2. Confusing accruals with prudence. Matching an expense to the right year is accruals. Writing down inventory or providing for doubtful debts is prudence.
3. Saying historic cost means assets never change in value. The recorded cost stays; depreciation reduces the net book value.
4. Valuing inventory in total instead of line by line, which can hide a write-down.
5. Treating prudence as permission to understate profit. It requires caution, not bias.
6. Calling depreciation a way of saving money for replacement. It is an expense with no cash movement.

Frequently asked questions

What is the business entity concept? The owner and the business are treated as two different parties for accounting, so only the business’s own dealings are recorded. Paying the owner’s private bills from the business is drawings, not an expense.

What does the prudence concept mean? Do not overstate profit or assets and do not understate expenses or liabilities; recognise losses as soon as they are foreseen. Prudence requires caution, not bias, so it is not permission to understate profit.

When is revenue recognised under the realisation concept? Revenue is recognised when the goods are delivered or the service is performed and the customer becomes liable to pay, not when the order is placed and not necessarily when the cash arrives.

What is the difference between accruals and prudence? Matching an expense or income to the right year is accruals. Writing down inventory to net realisable value or providing for doubtful debts is prudence.

What makes an item material? An item is material when a mistake in it, or its omission, could alter what a reader of the statements decides. Trivial items are treated in the simplest way, such as expensing a cheap stapler at once instead of depreciating it.

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).