OxfordAQA IGCSE Accounting: Irrecoverable debts, provisions for doubtful debts and inventory (9215)

This guide follows the OxfordAQA International GCSE Accounting (9215) specification, version 1.2, for exams from May/June 2026 onwards. It covers part of section 3.3, Development of the accounting model: irrecoverable debts, provisions for doubtful debts, and opening and closing inventory, using cost or net realisable value, in ledger accounts and financial statements. All amounts are in dollars. The qualification is assessed by written papers only, and content 3 is listed under both Paper 1 and Paper 2, so you can meet this material in either.

Related pages: revision notes, practice questions, the course hub, the printable checklist and the free diagnostics.

What the specification asks for

Specification point (section 3.3)	What you must be able to do
Adjustments: irrecoverable debts	Write off a debt in the ledger, and show the expense in the income statement
Make entries for irrecoverable debts in the trade receivables ledger and financial statements	Credit the customer’s account, debit irrecoverable debts, and show trade receivables correctly in the statement of financial position
Adjustments: provisions for doubtful debts	Create, increase and decrease a provision, in the ledger and in both statements
Adjustments: opening and closing inventory	Transfer both to the income statement, and carry closing inventory forward as an asset
Inventories valued using cost or net realisable value	Value each line at the lower of the two and explain why
Use of concepts in situations	Link prudence, accruals, historic cost and consistency to these adjustments

The specification states that the recovery of irrecoverable debts will not be examined, so this guide does not cover it. Section 3.4 also excludes inventory valuation by FIFO, AVCO or LIFO from the examination. Inventory here is valued on cost or net realisable value only.

Irrecoverable debts

A credit sale creates a trade receivable: the customer owes the business money. If the business decides it will never be paid, for example because the customer has closed down, the debt is irrecoverable. The asset has gone, so the business must remove it and recognise the loss as an expense.

Two sets of books are involved. The customer’s personal account sits in the trade receivables ledger. The irrecoverable debts account sits in the general ledger.

Wynmoor Cycle Works sells bicycles on credit to clubs and schools. In June it decides that K. Dunstall’s balance of 275 cannot be collected. In September it decides the same about M. Alvarez, who owes 540.

Entry	Debit	Credit
June write-off	Irrecoverable debts 275	K. Dunstall account 275
September write-off	Irrecoverable debts 540	M. Alvarez account 540

M. Alvarez account (trade receivables ledger)

Date	Details	Debit	Date	Details	Credit
1 Mar	Sales	540	12 Sep	Irrecoverable debts	540

Irrecoverable debts account (general ledger)

Date	Details	Debit	Date	Details	Credit
30 Jun	K. Dunstall	275	31 Dec	Income statement	815
12 Sep	M. Alvarez	540
		815			815

At the year end the account is cleared into the income statement, where 815 is listed with the expenses. Before the two write-offs the trade receivables total was 19,455. Afterwards it is 18,640, which is the figure that goes into the statement of financial position, or the trial balance, before any provision is deducted.

Provisions for doubtful debts

An irrecoverable debt is certain. A provision for doubtful debts deals with something less certain: among the receivables still on the books, some may not pay, but you cannot yet say which. The business estimates the likely loss, often as a percentage of trade receivables, and sets it aside.

The provision is not a customer’s balance and is not written off against any named account. It is a separate credit balance in the general ledger. In the statement of financial position it is deducted from trade receivables. Because only the change in the provision affects profit, you work with the difference each year.

Wynmoor Cycle Works provides 5% of trade receivables, calculated after irrecoverable debts have been written off.

Year end	Trade receivables	Provision needed at 5%	Existing provision	Change
Year 1	18,640	932	nil	Create 932
Year 2	20,200	1,010	932	Increase 78
Year 3	15,400	770	1,010	Decrease 240

Provision for doubtful debts account, year 2

Date	Details	Debit	Date	Details	Credit
31 Dec	Balance c/d	1,010	1 Jan	Balance b/d	932
			31 Dec	Income statement	78
		1,010			1,010

Provision for doubtful debts account, year 3

Date	Details	Debit	Date	Details	Credit
31 Dec	Income statement	240	1 Jan	Balance b/d	1,010
31 Dec	Balance c/d	770
		1,010			1,010

In year 2 the increase of 78 is an expense in the income statement, listed with the other expenses. In year 3 the decrease of 240 is a gain that raises profit, shown as a reduction in expenses or as other income. In the year 2 statement of financial position:

Current assets
Trade receivables	20,200
Less provision for doubtful debts	(1,010)
	19,190

Opening and closing inventory

Inventory is the goods the business holds for resale. The income statement needs the cost of the goods actually sold, so it adjusts purchases for the change in inventory:

Cost of sales = opening inventory + purchases - closing inventory

The ledger handles this in two steps. Opening inventory is moved out of the inventory account to the income statement. Closing inventory is moved in from the income statement, and the account’s balance carried down becomes the asset in the statement of financial position. Wynford Pet Supplies has opening inventory of 9,600 and closing inventory of 11,300.

Inventory account

Date	Details	Debit	Date	Details	Credit
1 Jan	Balance b/d	9,600	31 Dec	Income statement	9,600
31 Dec	Income statement	11,300	31 Dec	Balance c/d	11,300
		20,900			20,900

On 1 January the next year, 11,300 is brought down as the new opening inventory.

Valuing inventory: cost or net realisable value

The starting point is cost, which links to the historic cost concept. If goods will sell for less than they cost, prudence says you must not carry them at more than you can recover. So each line is valued at the lower of cost and net realisable value:

Net realisable value = expected selling price - any costs of repair or completion - selling costs

At the year end Wynford counts three lines. The heaters were stored in damaged boxes: 40 heaters cost 38 each, will probably sell at 30 each, and each needs 5 of selling costs, so net realisable value is 25 each, or 1,000 for the line.

Line	Cost	Net realisable value	Valued at
Dog beds	4,860	6,100	4,860
Aquarium heaters	1,520	1,000	1,000
Small pet foods	5,440	6,300	5,440
Total	11,820	13,400	11,300

The value used is 11,300. The 520 difference from cost lowers closing inventory, raises cost of sales and so lowers profit now. A gain is never anticipated: a line worth more than cost stays at cost until it is sold.

Closing inventory is counted line by line each year using the same basis. That is the consistency concept: changing the basis from year to year would make profits impossible to compare.

Putting it together: Wynford Pet Supplies

The trial balance at 31 December shows revenue 148,200, purchases 92,500, opening inventory 9,600, wages 21,400, rent 6,000, general expenses 4,300, irrecoverable debts 780 (already written off), trade receivables 14,600 and a provision for doubtful debts of 500. Closing inventory is 11,300, from the table above. The provision is to be 5% of trade receivables: 730, an increase of 230.

Income statement for the year ended 31 December

Revenue		148,200
Opening inventory	9,600
Purchases	92,500
	102,100
Less closing inventory	(11,300)
Cost of sales		(90,800)
Gross profit		57,400
Wages	21,400
Rent	6,000
General expenses	4,300
Irrecoverable debts	780
Increase in provision for doubtful debts	230
Total expenses		(32,710)
Net profit		24,690

Statement of financial position (extract)

Current assets
Inventory		11,300
Trade receivables	14,600
Less provision for doubtful debts	(730)	13,870

Suppose closing inventory had been wrongly recorded as 12,300. Cost of sales would fall to 89,800, and net profit would rise to 25,690, an overstatement of 1,000. The next year’s opening inventory would then be 1,000 too high, which understates that year’s profit by the same amount.

The concepts behind the adjustments

• Prudence: do not overstate assets or profit. It supports the provision and the lower-of-cost-and-net-realisable-value rule.
• Accruals: the loss on sales belongs to the period of the sales, which is why a provision is made each year end rather than waiting for debts to go bad.
• Historic cost: inventory starts at what it cost, not what you hope to sell it for.
• Consistency: use the same method of calculating the provision and valuing inventory from year to year.
• Going concern: you value goods on the basis that the business will keep trading and selling them in the normal way.

Common errors

• Debiting the customer’s account when writing off a debt. The customer is credited.
• Calculating the provision on trade receivables before irrecoverable debts are removed.
• Charging the whole provision to the income statement each year instead of only the change.
• Treating a decrease in the provision as an expense.
• Deducting the provision from inventory rather than trade receivables.
• Valuing a line above cost because its net realisable value is higher.
• Adding closing inventory in the expenses instead of deducting it in the calculation of cost of sales.

Next, try the practice questions, then use the revision notes to consolidate.

Frequently asked questions

How is an irrecoverable debt written off? Credit the customer’s account in the trade receivables ledger and debit the irrecoverable debts account in the general ledger. At the year end the irrecoverable debts account is cleared into the income statement as an expense.

Why does a business keep a provision for doubtful debts? Among the receivables still on the books, some may not pay, but the business cannot yet say which. It estimates the likely loss, often as a percentage of trade receivables, and sets it aside, which applies the prudence concept.

How is cost of sales calculated? Cost of sales = opening inventory + purchases − closing inventory. In the ledger, opening inventory is moved to the income statement and closing inventory is brought in from it.

Is the recovery of irrecoverable debts examined in OxfordAQA 9215? No. The specification states that the recovery of irrecoverable debts will not be examined.

How is net realisable value calculated for inventory? Net realisable value = expected selling price − any costs of repair or completion − selling costs. Each line is valued at the lower of cost and net realisable value.

Official syllabus

OxfordAQA International GCSE Accounting (9215), specification version 1.2, for exams from May/June 2026 onwards, published by OxfordAQA. This guide covers part of section 3.3.