Cambridge IGCSE Accounting (0452) – Quick‑Reference Study Guide (2026)
1. Fundamentals of Accounting
- Purpose of accounting (Syllabus 1.1):
- Record, classify and interpret financial information.
- Provide a reliable basis for monitoring the business’s performance.
- Assist owners, managers and external users in making informed decisions.
- Accounting equation (dual aspect):
Assets = Liabilities + Capital (sole‑trader)
Assets = Liabilities + Shareholders’ equity (company).
- Types of accounts (real, personal, nominal):
- Real – assets (Cash, Machinery, Land).
- Personal – persons or organisations (Debtors, Creditors, Owners).
- Nominal – income and expenses (Sales, Rent, Wages).
- Key accounting concepts (Syllabus 7.1):
- Entity, Going‑concern, Accruals, Matching, Prudence, Consistency, Materiality, Duality.
2. Sources of Information & Recording of Transactions
2.1 Business documents (Syllabus 2.1)
| Document | Information supplied |
|---|
| Invoice (sales) | Revenue, VAT, debtor name, date |
| Invoice (purchases) | Cost, VAT, creditor name, date |
| Receipt | Cash received, payer, purpose |
| Cheque / Paying‑in slip | Bank payment/receipt details |
| Statement of account | Balances of debtors/creditors at a point in time |
| Credit note | Reduction of a sale or purchase amount |
| Debit note | Increase of a purchase amount or return of goods |
| Petty‑cash voucher (imprest system) | Small cash payments, replenishment details |
2.2 Double‑entry system (Syllabus 2.2)
- Every transaction affects at least two accounts – one debit and one credit.
- Ledger structure:
- Sales ledger – records all debtor (receivable) accounts.
- Purchases ledger – records all creditor (payable) accounts.
- Nominal (general) ledger – records all income, expense and capital accounts.
2.3 Books of prime entry (Syllabus 2.3)
| Book | Purpose |
|---|
| Cash book (receipts & payments) | Records all cash and bank transactions. |
| Sales journal (sales & sales returns) | Records credit sales and sales returns. |
| Purchases journal (purchases & purchases returns) | Records credit purchases and purchase returns. |
| General journal (adjusting & correcting entries) | Used for depreciation, accruals, pre‑payments, errors, etc. |
| Petty‑cash book (imprest system) | Tracks small cash outflows and periodic replenishment. |
2.4 Ledger & Trial Balance (Syllabus 2.4)
- Ledger: separate page (or electronic record) for each account; debits on the left, credits on the right.
- Trial balance:
- Lists the closing balances of all ledger accounts.
- Primary check: total debits must equal total credits.
- Uses: detect arithmetic errors, provide a basis for the financial statements.
- Limitations: does not detect errors of omission, commission, compensating, complete reversal, principle, or original entry errors that keep the totals equal.
- Control accounts & subsidiary ledgers (e.g., Debtors Control, Creditors Control):
- Summarise large numbers of similar transactions.
- Exam rule: candidates are **not required** to reconcile control balances with the subsidiary ledgers.
3. Verification of Accounting Records
3.1 Bank reconciliation (Syllabus 3.1)
Adjust the cash‑book balance to agree with the bank statement.
- Items to adjust:
- Unpresented cheques
- Uncredited deposits (deposits in transit)
- Bank charges & interest
- Direct debits or standing orders not yet recorded
- Bank errors (if any)
- Result: Reconciled cash‑book balance = Adjusted bank statement balance.
3.2 Control‑account checks (Syllabus 3.2)
- Ensure the total of the subsidiary ledger equals the balance in the corresponding control account.
- Useful for detecting posting errors in large volumes of debtor or creditor transactions.
3.3 Common errors & how to spot them (Syllabus 3.3)
| Error type | Effect on trial balance | Detection method |
|---|
| Transposition (e.g., £532 → £352) | Totals differ | “9‑s” test (difference divisible by 9) |
| Omission of entry | Totals still balance | Check source documents against journals |
| Single‑sided entry | Totals do not balance | Trial balance check |
| Wrong amount | Totals do not balance | Re‑calculate totals |
| Wrong account | Totals balance | Review ledger postings |
| Double posting | Totals do not balance (double debit or credit) | Cross‑check journal entries |
| Commission, compensating, complete reversal, principle, original entry errors | Totals balance | Inspect individual entries |
3.4 Correcting errors (Syllabus 3.4)
- Post a correcting entry in the general journal and then to the ledger.
- When the correct amount or account is unknown, use a suspense account to keep the trial balance in balance. The suspense balance is cleared once the error is identified.
- Adjustments affect the Statement of Financial Position (e.g., correcting an overstated asset reduces equity).
4. Accounting Procedures (Syllabus 4)
4.1 Capital vs. revenue items
- Capital items – provide future economic benefit over more than one accounting period (e.g., purchase of machinery, building).
- Revenue items – relate to the current period’s profit‑and‑loss (e.g., repair costs, wages).
4.2 Depreciation (Syllabus 4.3)
- Straight‑line method (mandatory):
Annual charge = (Cost – Residual value) ÷ Useful life.
- Reducing‑balance method (optional for practice):
Charge = Opening NBV × Depreciation rate.
- Depreciation is a non‑cash expense; it reduces the carrying amount of a fixed asset and is shown as an expense in the Income Statement.
4.3 Accruals and pre‑payments (Syllabus 4.4)
- Accrued expenses – recognised before cash is paid (e.g., salaries owed at year‑end).
- Accrued income – earned but not yet received (e.g., interest earned).
- Pre‑paid expenses – cash paid before the benefit is received (e.g., insurance, rent).
- Deferred income – cash received before the related service is performed.
4.4 Doubtful‑debt provision (Syllabus 4.5)
- Estimate the amount of trade debt that may not be collected.
- Create a contra‑asset (Provision for Doubtful Debts) and charge the estimated amount to the Income Statement.
4.5 Inventory valuation (Syllabus 4.6)
- Closing stock is valued at the lower of cost or net realisable value.
- Cost methods used in the IGCSE:
- FIFO (First‑In, First‑Out) – default for exam questions.
- Weighted‑average – occasionally required for extended practice.
5. Preparation of Financial Statements (Syllabus 5)
5.1 Types of entities & required statements
| Entity | Key statements required |
|---|
| Sole‑trader | Income Statement (Profit & Loss) & Statement of Financial Position |
| Partnership | Same as sole‑trader + Capital accounts for each partner |
| Limited company | Income Statement, Statement of Financial Position, (optional) Statement of Changes in Equity |
| Club / Society (non‑profit) | Statement of Financial Activities (income & expenditure) & Statement of Financial Position |
| Manufacturing business | Income Statement includes Cost of Goods Sold = Opening stock + Purchases + Production costs – Closing stock |
5.2 Format of the Income Statement (Profit & Loss Account)
Sales
‑ Cost of Goods Sold
= Gross profit
± Other income
‑ Operating expenses (wages, rent, depreciation, etc.)
= Net profit (or loss)
5.3 Format of the Statement of Financial Position (Balance Sheet)
Assets
Current assets
Cash, Bank, Debtors, Stock
Non‑current assets
Fixed assets (cost less accumulated depreciation)
Total assets
Liabilities
Current liabilities
Creditors, Bank overdraft, Accrued expenses
Non‑current liabilities
Long‑term loans
Total liabilities
Capital (or Shareholders’ equity)
Opening capital
+ Net profit
– Drawings (or dividends)
Closing capital
Total assets = Total liabilities + Capital
5.4 Incomplete Records – Opening & Closing Statements of Affairs (Syllabus 5.6)
When a business does not keep a full set of double‑entry accounts, a Statement of Affairs summarises the financial position. Two versions are required:
- Opening Statement of Affairs – position at the start of the period.
- Closing Statement of Affairs – position at the end of the period after all adjustments.
5.4.1 General procedure
- Gather every piece of information still available (cash book, bank statements, invoices, stock‑take report, depreciation schedule, etc.).
- List all assets and liabilities that can be measured reliably.
- Classify assets as current (cash, bank, debtors, stock) or non‑current (machinery, equipment, buildings).
- Compute Net Worth:
Net Worth = Total Assets – Total Liabilities.
- Enter the figures in the prescribed format (see tables below).
5.4.2 Opening Statement of Affairs
| Opening Statement of Affairs |
|---|
| Assets | £ |
| Cash in hand | |
| Bank balances | |
| Debtors | |
| Stock (closing inventory of the previous year) | |
| Fixed assets (cost less accumulated depreciation) | |
| Total Assets | |
| Liabilities | £ |
| Creditors | |
| Bank overdraft | |
| Loans (long‑term) | |
| Total Liabilities | |
| Net Worth (Opening Capital) | Total Assets – Total Liabilities |
5.4.3 Closing Statement of Affairs
| Closing Statement of Affairs |
|---|
| Assets | £ |
| Cash in hand | |
| Bank balances | |
| Debtors (after adjustments for bad debts) | |
| Stock (physical closing inventory) | |
| Fixed assets (cost less accumulated depreciation) | |
| Total Assets | |
| Liabilities | £ |
| Creditors | |
| Bank overdraft | |
| Loans (long‑term) | |
| Total Liabilities | |
| Net Worth (Closing Capital) | Total Assets – Total Liabilities |
5.4.4 Worked example (Closing Statement of Affairs)
- Information available
- Cash in hand: £2,500
- Bank balance (statement): £7,800
- Debtors (aged trial balance): £5,200
- Creditors: £3,600
- Closing stock (physical count): £4,300
- Machinery cost £12,000; accumulated depreciation £4,500
- Bank overdraft: £1,200
- Calculate total assets
\[
\begin{aligned}
\text{Total Assets} &= 2,500 + 7,800 + 5,200 + 4,300 + (12,000-4,500)\\
&= 2,500 + 7,800 + 5,200 + 4,300 + 7,500\\
&= 27,300\ \text{£}
\end{aligned}
\]
- Calculate total liabilities
\[
\text{Total Liabilities}=3,600 + 1,200 = 4,800\ \text{£}
\]
- Net Worth (Closing Capital)
\[
\text{Net Worth}=27,300 - 4,800 = 22,500\ \text{£}
\]
- Enter the figures in the Closing Statement of Affairs table above.
6. Analysis & Interpretation of Accounts (Ratios) – Syllabus 6
All ratios are expressed using the figures from the Income Statement and the Statement of Financial Position.
| Ratio | Formula (using £) | Interpretation |
| Gross Margin % |
\(\displaystyle \frac{\text{Sales} - \text{COGS}}{\text{Sales}}\times100\) |
Higher % = better control of production/purchasing costs. |
| Profit Margin % |
\(\displaystyle \frac{\text{Net profit}}{\text{Sales}}\times100\) |
Shows overall profitability after all expenses. |
| Return on Capital Employed (ROCE) % |
\(\displaystyle \frac{\text{Net profit}}{\text{Opening Capital + Borrowings}}\times100\) |
Efficiency of capital utilisation. |
| Current Ratio |
\(\displaystyle \frac{\text{Current assets}}{\text{Current liabilities}}\) |
Liquidity – ability to meet short‑term obligations. |
| Acid‑Test (Quick) Ratio |
\(\displaystyle \frac{\text{Cash + Bank + Debtors}}{\text{Current liabilities}}\) |
Liquidity excluding stock. |
| Debtor Turnover (days) |
\(\displaystyle \frac{\text{Average Debtors}}{\text{Credit sales}}\times365\) |
How quickly debtors are collected. |
| Creditor Turnover (days) |
\(\displaystyle \frac{\text{Average Creditors}}{\text{Credit purchases}}\times365\) |
How quickly the business pays its suppliers. |
| Stock Turnover (days) |
\(\displaystyle \frac{\text{Average Stock}}{\text{COGS}}\times365\) |
Speed of inventory conversion into sales. |
Limitations of Ratio Analysis (Syllabus 6.2)
- Based on historical cost – may not reflect current market values.
- Different accounting policies (e.g., depreciation method) affect comparability.
- Ratios give no insight into qualitative factors such as management quality, market conditions or brand reputation.
- Seasonal businesses require comparison with like periods.