IGCSE Accounting (0452) – Complete Syllabus Notes (2026)
1. Fundamentals of Accounting
1.1 Purpose of Accounting
- Provide information for monitoring performance and controlling operations.
- Assist owners, managers and external users in decision‑making (e.g., pricing, investment).
- Meet legal and statutory reporting requirements.
1.2 The Accounting Equation
Assets = Liabilities + Owner’s Equity
Every transaction must keep this equation in balance.
1.3 The Dual‑Aspect (Double‑Entry) Principle
- Each transaction is recorded as at least one debit and one credit.
- Debits increase assets & expenses; they decrease liabilities, equity & revenue.
- Credits do the opposite.
1.4 Types of Ledger Accounts
| Account Group | Examples |
|---|
| Real (Asset) Accounts | Cash, Stock, Equipment, Buildings |
| Personal (Liability & Owner) Accounts | Capital, Loans, Accounts Payable, Drawings |
| Nominal (Revenue & Expense) Accounts | Sales, Purchases, Rent, Salary |
2. Sources & Recording of Data
2.1 Business Documents (the six primary sources)
| Document | Purpose |
|---|
| Invoice (Sales / Purchase) | Records a sale or purchase and the amount due. |
| Debit / Credit Note | Adjusts a previously issued invoice (returns, price changes). |
| Statement of Account | Summarises a customer’s or supplier’s outstanding balances. |
| Cheque | Authorises a cash payment from the bank. |
| Receipt / Paying‑in Slip | Evidence of cash received and deposited. |
| Petty‑Cash Voucher (Imprest) | Records small cash payments from a fixed petty‑cash fund. |
2.2 Double‑Entry & Ledger Structure
- Analyse the document to identify the accounts affected.
- Determine which account is debited and which is credited.
- Post the amounts to the appropriate ledger accounts.
2.3 Books of Prime Entry
| Book | Primary Use | Typical Entries |
|---|
| Sales Journal | Credit sales of goods | Sales, Discount Allowed (if taken) |
| Purchases Journal | Credit purchases of goods | Purchases, Discount Received (if taken) |
| Cash Receipts Journal | All cash received | Cash sales, debtors’ payments, loan received |
| Cash Payments Journal | All cash paid out | Cash purchases, creditors’ payments, expenses |
| Cash Book (combined) | Cash & bank transactions in one book | Both receipts and payments (two‑column format) |
| Returns Journals | Goods returned | Sales Returns, Purchases Returns |
| General Journal | Non‑repetitive / adjusting entries | Depreciation, accruals, error corrections |
2.4 The Imprest (Petty‑Cash) System
- A fixed amount (the imprest fund) is kept for small, irregular expenses.
- When cash is spent, a petty‑cash voucher is completed and the amount is deducted from the fund.
- At the end of the period the fund is replenished to its original level; the total of vouchers equals the cash taken out.
Journal entry to replenish the fund (assuming a £200 imprest and vouchers totalling £150):
| Account | Debit (£) | Credit (£) |
|---|
| Petty‑Cash Expenses (e.g., Office Supplies) | 150 | |
| Cash/Bank | | 150 |
2.5 Trade Discount vs. Cash Discount
2.5.1 Definitions
- Trade Discount: A reduction on the list (catalogue) price given by the seller before an invoice is issued – usually for bulk buying or loyalty.
- Cash Discount (Discount for Early Payment): A reduction on the *invoice* amount offered by the seller if the buyer pays within a specified period (e.g., 2 % / 10 days).
2.5.2 Accounting Treatment
| Aspect | Trade Discount | Cash Discount |
|---|
| When recorded |
Before the invoice – the net amount is recorded; no separate discount account. |
When the payment is made within the discount period. |
| Seller’s ledger |
Sales recorded at net amount; no discount account. |
Debit Discount Allowed (expense) and Credit Cash (or Bank). |
| Buyer’s ledger |
Purchases recorded at net amount; no discount account. |
Debit Cash (or Bank) and Credit Discount Received (income). |
2.5.3 Journal Examples
Trade Discount (Buyer) – 100 units @ £5 each, 10 % trade discount.
Net amount = 100 × £5 × (1‑0.10) = £450
Debit Purchases £450
Credit Accounts Payable £450
Cash Discount (Seller) – Invoice £1,200, terms 3 %/15 days, paid on day 12.
| Account | Debit (£) | Credit (£) |
|---|
| Cash | 1,164 | |
| Discount Allowed | 36 | |
| Accounts Receivable | | 1,200 |
Cash Discount (Buyer) – Invoice £2,500, terms 2 %/10 days, paid on day 9.
| Account | Debit (£) | Credit (£) |
|---|
| Accounts Payable | 2,500 | |
| Cash | | 2,450 |
| Discount Received | | 50 |
3. Verification of Accounting Records
3.1 Trial Balance
- List all ledger balances – debit column first, then credit column.
- Total each column.
- If the totals agree, the ledger is arithmetically correct; if not, locate and correct the error.
3.2 Common Errors & Their Effect on the Trial Balance
| Error Type | Effect on Trial Balance |
|---|
| Omission of an entry | No effect (both sides missing). |
| Commission error (wrong amount) | Totals will differ. |
| Single‑sided entry | Totals will differ. |
| Transposition of figures (e.g., £135 → £153) | Totals will differ. |
| Posting to wrong account (but correct side) | Totals still agree – error not detected. |
3.3 Control Accounts
- Purchases Ledger Control (PLC) – summarises all individual creditor balances. The total of the PLC must equal the total of the Creditors (Accounts Payable) ledger balance.
- Sales Ledger Control (SLC) – summarises all individual debtor balances. The total of the SLC must equal the total of the Debtors (Accounts Receivable) ledger balance.
3.4 Bank Reconciliation
- Start with the cash‑book (bank column) balance.
- Add: Deposits in transit – recorded in the cash book but not yet on the bank statement.
- Deduct: Outstanding cheques – issued and recorded but not yet cleared.
- Adjust for any bank charges, interest, direct credits, or errors identified on the statement.
- The adjusted cash‑book balance should equal the bank statement balance.
Example (all figures £):
- Cash‑book balance: 5,200
- + Deposits in transit: 800
- – Outstanding cheques: 450
- – Bank fee: 20
- Adjusted cash‑book balance = 5,530 which matches the bank statement.
4. Accounting Procedures
4.1 Capital vs. Revenue Expenditure
- Capital expenditure creates or enhances a non‑current asset (e.g., purchase of machinery). Recorded on the balance sheet and depreciated over its useful life.
- Revenue expenditure is incurred for day‑to‑day operations (e.g., repairs, wages). Recorded in the profit‑and‑loss account.
4.2 Depreciation
| Method | Formula | Journal Entry (Annual) |
|---|
| Straight‑Line |
(Cost – Residual Value) ÷ Useful Life |
Debit Depreciation Expense
Credit Accumulated Depreciation |
| Reducing‑Balance |
Carrying Amount × Depreciation % (e.g., 20 %) |
Debit Depreciation Expense
Credit Accumulated Depreciation |
| Revaluation (increase only) |
New Fair Value – Carrying Amount |
Debit Asset (or Revaluation Surplus)
Credit Revaluation Reserve (Equity) |
4.3 Disposal of Non‑Current Assets
When an asset is sold or scrapped, compare the proceeds with its carrying amount.
- Gain on disposal = Proceeds – Carrying Amount → Credit Gain on Disposal (nominal income).
- Loss on disposal = Carrying Amount – Proceeds → Debit Loss on Disposal (nominal expense).
Journal example – Machine cost £5,000, accumulated depreciation £3,200, sold for £1,600.
| Account | Debit (£) | Credit (£) |
|---|
| Cash | 1,600 | |
| Accumulated Depreciation | 3,200 | |
| Loss on Disposal | 200 | |
| Machinery (Cost) | | 5,000 |
4.4 Accruals and Pre‑payments
- Accrued expense – expense incurred but not yet paid (e.g., wages at month‑end).
Journal: Debit Expense, Credit Accrued Liabilities.
- Accrued income – revenue earned but not yet received (e.g., interest earned).
Journal: Debit Accrued Receivables, Credit Revenue.
- Pre‑paid expense – cash paid in advance (e.g., insurance).
Journal (payment): Debit Pre‑payments, Credit Cash.
Adjusting entry (at period end): Debit Expense, Credit Pre‑payments.
- Deferred income – cash received before the service is performed (e.g., rent received in advance).
Journal (receipt): Debit Cash, Credit Deferred Income.
Adjusting entry (when earned): Debit Deferred Income, Credit Revenue.
4.5 Irrecoverable Debts & Provision for Doubtful Debts
Two approaches are accepted by the syllabus:
- Direct Write‑Off – when a specific debt is deemed irrecoverable.
Journal: Debit Bad Debt Expense, Credit Debtors.
- Provision (Allowance) Method – estimate a percentage of total trade receivables.
Calculation example: 2 % of £12,000 receivables = £240 provision.
Journal (year‑end): Debit Bad Debt Expense £240, Credit Provision for Doubtful Debts £240.
4.6 Inventory Valuation – Lower of Cost or Net Realisable Value (NRV)
- Determine Cost of each item (purchase price + freight + duty).
- Calculate NRV = Expected selling price – Estimated costs to complete & sell.
- Value each item at the lower of Cost or NRV; total gives the inventory figure for the balance sheet.
Numeric example:
- Cost of 100 units = £5 each → £500.
- Estimated selling price = £6 each → £600.
- Estimated selling costs = £0.30 each → £30.
- NRV = £600 – £30 = £570.
- Lower of Cost (£500) and NRV (£570) = £500 → inventory recorded at £500.
5. Preparation of Financial Statements
5.1 Sole Trader
- Income Statement (Profit & Loss Account) – Revenue – Cost of Goods Sold – Expenses = Net Profit.
- Statement of Financial Position (Balance Sheet) – Assets = Liabilities + Capital (Capital increased by Net Profit, reduced by Drawings).
5.2 Partnership
- Same two primary statements as a sole trader.
- Additional Profit‑and‑Loss Appropriation Account to allocate profit among partners according to the partnership agreement.
- Each partner has a separate Capital account; drawings are shown as reductions.
5.3 Limited Company
- Statement of Financial Activities (SFA) – replaces the traditional profit & loss for many companies (revenue, cost of sales, gross profit, operating profit, profit before tax, profit after tax).
- Statement of Financial Position – Assets, Liabilities, and Equity (Share Capital, Share Premium, Retained Earnings, Reserves).
- Dividends are shown as a deduction from Retained Earnings.
5.4 Clubs & Societies (Non‑Profit)
- Receipts & Payments Account – cash‑flow style, summarising cash received and cash paid.
- Statement of Financial Activities – shows Income, Expenditure and the resulting Surplus/Deficit (Change in Funds).
5.5 Manufacturing Business
Requires a Cost Sheet before the final profit calculation.
- Opening Stock of Raw Materials
- + Purchases of Raw Materials
- + Direct Labour
- + Direct Expenses
- – Closing Stock of Raw Materials = Raw Materials Consumed
- + Opening Work‑in‑Progress
- + Manufacturing Overheads
- – Closing Work‑in‑Progress = Cost of Production
- + Opening Finished Goods
- + Cost of Production
- – Closing Finished Goods = Cost of Goods Sold
- Sales – Cost of Goods Sold = Gross Profit
- – Selling & Distribution Expenses – Administrative Expenses = Net Profit
5.6 Incomplete Records (Single‑Entry System)
Used when a full double‑entry system is not maintained (e.g., small sole traders). The steps to prepare statements are:
- Prepare a Statement of Affairs – list all assets and liabilities to determine net capital.
- Construct a Profit & Loss Account using the “income‑expenditure” approach (total income – total expenditure = profit).
- Adjust for any capital introduced or withdrawn during the period.
- Reconcile the opening and closing capital figures to ensure consistency.
6. Summary Checklist for the IGCSE Accounting (0452) Exam
- Purpose of accounting, equation, dual‑aspect principle.
- Identify and classify the six business documents.
- Post correctly to the appropriate books of prime entry; recognise the imprest system.
- Distinguish trade discount (record at net amount) from cash discount (record when taken) and use the correct nominal accounts.
- Prepare trial balances, recognise common errors, and use control accounts.
- Perform bank reconciliations and understand their components.
- Apply all three depreciation methods, record disposals, and calculate gains/losses.
- Handle accruals, pre‑payments, doubtful debts (direct write‑off & provision).
- Value inventory at the lower of cost or NRV.
- Prepare appropriate financial statements for sole traders, partnerships, limited companies, clubs/societies, manufacturing firms, and for businesses with incomplete records.