OxfordAQA IGCSE Accounting: Sole traders: financial statements and comparison with other organisations (9215)

This guide follows the OxfordAQA International GCSE Accounting (9215) specification, version 1.2, for exams from May/June 2026 onwards (first teaching 2024, first examined 2026). It covers part of section 3.4, Preparation of financial statements (topic 4): how accounting concepts shape the figures, the advantages and disadvantages of sole traders, partnerships and limited companies, and sole traders’ income statements and statements of financial position for service and trading businesses. The specification lists Paper 2 as assessing content 3 to 5. All amounts are in dollars.

Related pages: revision notes, practice questions, recording guide, verification guide, the subject hub, the checklist and the free diagnostics.

What the specification asks for

Specification wording	You must be able to
Use of concepts in preparing statements	Record other payables and receivables, depreciation (straight line and reducing balance), disposals, provision for doubtful debts, irrecoverable debts, income due, income received in advance, goods taken for own use and inventory
Advantages and disadvantages of different organisations	Compare sole traders, partnerships and limited companies
Sole traders	Prepare statements from ledger accounts and from a trial balance, with adjustments, for service and trading businesses, and comment on them

The specification says that the FIFO, AVCO and LIFO methods of inventory valuation will not be examined. Inventory is valued at cost or net realisable value (section 3.3).

Concepts behind the adjustments

Each adjustment applies a concept. Knowing which one lets you explain a treatment, not just perform it.

Adjustment	Concept	Effect
Other payables (expense owing)	Accruals	Add to the expense; liability in current liabilities
Other receivables (expense paid in advance)	Accruals	Deduct from the expense; asset in current assets
Income due / received in advance	Accruals, realisation	Add or deduct so that income belongs to the year earned
Depreciation	Going concern, historic cost, consistency	Spreads cost over use; a non-cash expense; keep the same method year to year
Irrecoverable debt	Prudence	Expense; trade receivables reduced
Provision for doubtful debts	Prudence	Only the change in the provision is charged
Inventory at cost or net realisable value	Prudence	Lower figure used, so profit is not overstated
Goods taken for own use	Business entity	Drawings at cost, not an expense

Worked example 1: a trading business

Nerys Mallory runs Cobham Canvas Supplies. The year ends on 31 December 2025.

Trial balance	Debit	Credit
Inventory at 1 January 2025	9,200
Purchases	84,200
Carriage inwards	1,300
Wages	18,400
Rent paid	6,000
Insurance	2,400
Electricity	3,100
Delivery vehicle at cost	24,000
Shop fittings at cost	12,000
Trade receivables	11,500
Bank	6,300
Drawings	14,000
Sales		138,000
Trade payables		9,800
Provision for depreciation: vehicle		6,000
Provision for depreciation: fittings		3,000
Provision for doubtful debts		400
Rent received		3,000
Bank loan (repayable 2029)		10,000
Capital at 1 January 2025		22,200
Totals	192,400	192,400

Adjustments:

1. Closing inventory at cost is 11,200. It includes goods that cost 900 but can only be sold for 600 after costs.
2. Electricity owing is 420.
3. Insurance paid in advance is 600.
4. Rent received includes 500 for next year.
5. An irrecoverable debt of 500 is to be written off, then the provision set at 5% of remaining trade receivables.
6. The vehicle is depreciated by the straight line method (residual value 4,000, five years). The fittings are depreciated by the reducing balance method at 20%.
7. Nerys took goods that cost 700 for her own use. They are still in purchases.

Workings, each checked:

Item	Working	Result
Closing inventory	11,200 - 900 + 600	10,900
Purchases	84,200 - 700	83,500
Provision	5% of (11,500 - 500) = 550; 550 - 400	Increase of 150
Vehicle	(24,000 - 4,000) / 5	4,000
Fittings	20% of (12,000 - 3,000)	1,800
Drawings	14,000 + 700	14,700

Income statement for the year ended 31 December 2025

	Amount	Total
Revenue		138,000
Opening inventory	9,200
Purchases (after own use)	83,500
Carriage inwards	1,300
	94,000
Less closing inventory	10,900
Cost of sales		83,100
Gross profit		54,900
Rent received (3,000 - 500)		2,500
		57,400
Wages	18,400
Rent paid	6,000
Insurance (2,400 - 600)	1,800
Electricity (3,100 + 420)	3,520
Irrecoverable debt	500
Increase in provision for doubtful debts	150
Depreciation: vehicle	4,000
Depreciation: fittings	1,800
Total expenses		36,170
Net profit		21,230

Statement of financial position at 31 December 2025

	Cost	Depreciation	Net
Non-current assets
Delivery vehicle	24,000	10,000	14,000
Shop fittings	12,000	4,800	7,200
	36,000	14,800	21,200
Current assets
Inventory		10,900
Trade receivables (11,000 - 550)		10,450
Other receivables (insurance)		600
Bank		6,300	28,250
Current liabilities
Trade payables		9,800
Other payables (electricity)		420
Income received in advance		500	(10,720)
Net current assets			17,530
Non-current liabilities: bank loan			(10,000)
Net assets			28,730
Capital at start			22,200
Add net profit			21,230
Less drawings			(14,700)
Closing capital			28,730

The two halves agree, which is your check on the whole exercise.

Commentary a marker would credit: gross profit is 54,900 on revenue of 138,000 (39.8%) and net profit is 15.4% of revenue. Drawings of 14,700 are well below profit, so capital grew. Net current assets of 17,530 show the business can meet its short-term debts. The loan is long term, so it does not threaten that position.

Worked example 2: a service business with ledger accounts

Lowenna Delacourt runs Delacourt Piano Tuning (year end 30 June 2026). A service business has no inventory, so there is no cost of sales and the income statement starts with revenue and goes straight to expenses.

Ledger accounts show how the adjustments arise:

Insurance account                      Van running costs account
Paid        1,800 | Income st  1,350   Paid        4,200 | Income st  4,550
            | Other rec. c/d    450    Owing c/d     350 |

Disposal of van account
Van at cost     15,000 | Provision for depreciation  12,300
Profit to income st 700 | Bank (proceeds)              3,400
                15,700 |                             15,700

Provision for doubtful debts account
Balance c/d     288 | Balance b/d              180
                    | Income statement          108
                288 |                          288

Fee revenue in the trial balance is 46,800. Fees of 900 are due, and 1,200 was received in advance, so revenue is 46,800 + 900 - 1,200 = 46,500. Wages are 24,000, an irrecoverable debt is 300, and the 4% provision applies to receivables of 7,500 - 300 = 7,200. Equipment depreciation is 25% of a net book value of 6,000, which is 1,500.

Income statement (extract)	Amount
Revenue	46,500
Profit on disposal of van	700
Total income	47,200
Wages	24,000
Van running costs	4,550
Insurance	1,350
Irrecoverable debt	300
Increase in provision for doubtful debts	108
Depreciation: equipment	1,500
Total expenses	31,808
Net profit	15,392

The disposal account compares net book value (15,000 - 12,300 = 2,700) with proceeds of 3,400. Proceeds above net book value mean a profit. A loss would be an expense.

Goods taken for own use

The owner and the business are separate (business entity). Taking stock is drawings, valued at cost. Debit drawings, credit purchases. This lowers cost of sales, so gross profit rises, while capital falls by the same cost through drawings.

Comparing sole traders, partnerships and limited companies

	Advantages	Disadvantages
Sole trader	Owner keeps all profit and all control; quick decisions; simple to start	Unlimited liability; capital limited to the owner’s own funds and borrowing; business ends or depends on one person
Partnership	More capital and skills; workload and risk shared	Partners usually share unlimited liability; disagreements; profit is shared
Limited company	Limited liability for shareholders; shares can raise large sums; continues if owners change	More rules to follow; owners may lose control to other shareholders; setting up costs more

Match points to the case. A sole trader wanting to raise a large sum for a second site could consider a company for the capital, but the answer should weigh the loss of control and extra rules.

A method for any trial balance question

1. Read every adjustment first and mark which accounts it touches.
2. Work out each adjusted figure on rough paper: expense charge, income earned, depreciation, change in provision, closing inventory.
3. Build the income statement from revenue down, then add any income and deduct expenses.
4. Build the statement of financial position, placing each balance under non-current assets, current assets, current liabilities or non-current liabilities.
5. Roll capital forward: opening capital plus net profit less drawings. If net assets differ from closing capital, look for an adjustment entered once instead of twice.

Commenting on the statements

The specification asks you to comment, so numbers alone do not earn full credit. Say what the figure shows, then why it matters to the owner. Useful angles:

• Profit against drawings: if drawings exceed net profit, capital is falling, so the owner is taking out more than the business earns.
• Gross profit against revenue: a low or falling share may mean selling prices are too low or purchase costs are rising.
• Net current assets: positive figures suggest short-term debts can be paid, but check whether the cash sits in inventory that may not sell quickly.
• Long-term borrowing: a loan repayable in several years is a non-current liability and has less effect on short-term cash.

Common errors

• Charging the whole provision for doubtful debts to the income statement instead of the change.
• Treating goods taken for own use as an expense or leaving them in cost of sales.
• Adding a prepaid expense to the expense instead of deducting it.
• Valuing inventory at selling price or at cost when net realisable value is lower.
• Forgetting that net profit is added to capital and drawings deducted.

Frequently asked questions

Which accounting concepts explain the year-end adjustments? Accruals explains expenses owing and paid in advance, depreciation draws on going concern, historic cost and consistency, prudence explains irrecoverable debts, provisions for doubtful debts and valuing inventory at the lower of cost and net realisable value, and business entity explains treating goods taken by the owner as drawings.

How do you calculate profit or loss on disposal of a non-current asset? Compare the net book value of the asset (cost less accumulated depreciation) with the proceeds of sale. If proceeds exceed net book value there is a profit on disposal; if they are lower there is a loss, which is shown in the income statement.

What are the advantages of a limited company over a sole trader? A limited company gives its shareholders limited liability, can raise larger amounts of capital through shares and loans, and continues if an owner leaves. A sole trader keeps all the profit and makes quick decisions alone, but has unlimited liability and limited sources of finance.

What should you write when asked to comment on a sole trader’s financial statements? Use the figures to make a judgement, for example comparing gross and net profit margins or comparing drawings with net profit. If drawings exceed net profit, the owner’s capital falls, which is a point a marker would expect you to state and explain.

Official syllabus

OxfordAQA International GCSE Accounting (9215), specification version 1.2, section 3.4, for exams from May/June 2026 onwards. Published by OxfordAQA.