📌 IGCSE Accounting (0452) Complete Revision Guide

1️. Basic Accounting Concepts & Principles

The Accounting Equation

📌 Assets = Liabilities + Owner’s Equity

👉 Every transaction must keep this equation balanced.

Types of Accounts & Normal Balances

Account Type Increases By Normal Balance

Assets (Cash, Inventory, Equipment) Debit Debit

Liabilities (Loans, Payables) Credit Credit

Owner’s Equity (Capital, Retained Earnings) Credit Credit

Revenue (Sales, Fees Earned) Credit Credit

Expenses (Wages, Rent, Depreciation) Debit Debit

2️. Source Documents & Books of Prime Entry

Source Documents (Proof of transactions):

📜 Invoice → Used for credit sales/purchases
📜 Receipt → Proof of cash received
📜 Credit Note → Given when goods are returned
📜 Debit Note → Sent when requesting a refund
📜 Cheque → Proof of payment
📜 Bank Statement → Shows bank transactions

Books of Prime Entry

Book Records Used for

Sales Journal Credit Sales Sales Ledger

Purchases Journal Credit Purchases Purchases Ledger

Sales Returns Journal Goods returned by customers Sales Ledger

Purchases Returns Journal Goods returned to suppliers Purchases Ledger

Cash Book Cash & Bank Transactions Double-entry system

General Journal Other adjustments (e.g., depreciation, bad debts)

3️. Double-Entry System & Ledger Accounts

📌 Every transaction affects two accounts

📌 Debit = Credit

Example Journal Entries

(A) Owner invests $10,000 cash

Debit Cash $10,000 (Asset ↑)
Credit Capital $10,000 (Owner’s Equity ↑)

(B) Business buys inventory on credit for $5,000

Debit Purchases $5,000 (Expense ↑)

Credit Accounts Payable $5,000 (Liability ↑)

(C) Business pays $3,000 rent

Debit Rent Expense $3,000 (Expense ↑)

Credit Cash $3,000 (Asset ↓)

4️. Financial Statements

(A) Income Statement (Profit & Loss Statement)

Shows whether a business made a profit or loss

📌 Revenue - Cost of Goods Sold (COGS) = Gross Profit

📌 Gross Profit - Expenses = Net Profit

Example Format:

Revenue (Sales) $XX,XXX

Less: Cost of Sales (XX,XXX)

------------------------

Gross Profit $XX,XXX

Less: Expenses (XX,XXX)

------------------------

Net Profit $XX,XXX

(B) Balance Sheet (Statement of Financial Position)

Shows a business’s financial position at a specific date

📌 Assets = Liabilities + Owner’s Equity

Example Format:

Assets:

Non-Current Assets $XX,XXX

Current Assets $XX,XXX

------------------------

Total Assets $XX,XXX

Liabilities:

Current Liabilities $XX,XXX

Non-Current Liabilities $XX,XXX

------------------------

Owner’s Equity:

Capital $XX,XXX

Add: Net Profit $XX,XXX

Less: Drawings ($X,XXX)

------------------------

Total Equity & Liabilities $XX,XXX

5️. Depreciation of Non-Current Assets

📌 Depreciation = The reduction in value of an asset over time

Methods of Depreciation

1️) Straight-Line Method (Same amount each year)

Formula:
📌 (Cost - Residual Value) ÷ Useful Life

2️) Reducing Balance Method (More depreciation in early years)

Formula:
📌 Net Book Value × Depreciation Rate (%)

6️. Accounting Adjustments

(A) Accruals & Prepayments

 Accrued Expenses: Expense incurred but not yet paid (e.g., unpaid wages)

 Prepaid Expenses: Expense paid in advance (e.g., rent for next month)

 Accrued Revenue: Revenue earned but not yet received

 Prepaid Revenue: Revenue received in advance

(B) Bad Debts & Provision for Doubtful Debts

 Bad Debt: Money that a business will never recover

 Provision for Doubtful Debts: Estimated percentage of unpaid debts

7️. Bank Reconciliation Statement

📌 Checks for differences between the cash book & bank statement

Common Adjustments

✔️Unpresented Cheques (Issued but not yet cleared)

✔️Deposits in Transit (Received but not yet processed)
✔️Bank Charges, Errors, or Interest
8️. Control Accounts & Trial Balance

Control Accounts (Debtors & Creditors Control)

 Sales Ledger Control Account (Debtors Control): Shows total receivables

 Purchases Ledger Control Account (Creditors Control): Shows total payables

Trial Balance

📌 Ensures Debit = Credit before preparing financial statements

9️.Manufacturing Accounts

Used by manufacturing businesses to calculate cost of production

📌 Formula:
Prime Cost = Direct Materials + Direct Labour + Direct Expenses
Total Cost = Prime Cost + Factory Overheads + Work in Progress Adjustments

🔟 Partnership Accounts

Key Features:
✔️Profit & Loss Appropriation Account (Splits profit between partners)
✔️Current & Capital Accounts
✔️Interest on Capital & Drawings Adjustments

🔥 Exam Tips for IGCSE Accounting

✅ Memorize key formulas (especially for depreciation, profit, and cost calculations)
✅ Use proper layouts for financial statements
✅ Always show your workings in calculations
✅ Time management: Attempt easier questions first
✅ Practice past papers – common questions get repeated!

🚀 You Got This!

1. Bank Reconciliation Statements

 Purpose: To identify discrepancies between the bank statement and the cash book, and to correct errors.

 Process:

1. Start with the bank statement balance.

2. Add: Outstanding lodgements (deposits made by the business but not yet recorded by the bank).

3. Deduct: Outstanding cheques (cheques issued by the business but not yet cashed by the recipient).

4. Adjusted Bank Balance.

 5. Start with the cash book balance.

6. Add: Credit transfers (amounts received by the bank but not yet recorded in the cash book), interest
received, dividends received.

7. Deduct: Bank charges, direct debits (payments made by the bank on behalf of the business but not yet
recorded in the cash book), dishonoured cheques.

8. Adjusted Cash Book Balance.

 The two adjusted balances should be equal. Any remaining difference indicates an error that needs investigation.

 Key Terms: Outstanding lodgements, outstanding cheques, credit transfers, direct debits, dishonoured cheques.

2. Valuation (Inventory)

 Purpose: To determine the value of inventory at the end of an accounting period.

 Methods (IGCSE focuses on these):

o FIFO (First-In, First-Out): Assumes that the oldest inventory is sold first.

o LIFO (Last-In, First-Out): Assumes that the newest inventory is sold first (not allowed under IFRS).

o Weighted Average: Calculates the average cost of all inventory and uses this to value the inventory sold
and remaining.

 Lower of Cost and Net Realizable Value (NRV): Inventory should be valued at the lower of its cost (using FIFO,
LIFO, or Weighted Average) and its Net Realizable Value. NRV = Estimated Selling Price - Estimated Costs of
Completion and Selling.

 Impact of Valuation: Inventory valuation affects both the cost of goods sold and the value of current assets on the
balance sheet.

3. Incomplete Records (Single Entry)

 Characteristics: Businesses that do not maintain a full double-entry bookkeeping system.

 Methods to determine profit:

o Comparison of Capital: Profit = Closing Capital - Opening Capital + Drawings - Additional Capital
Introduced.

o Conversion to Double Entry: Reconstructing missing ledger accounts (e.g., sales ledger control account,
purchases ledger control account, cash book) to determine missing figures (e.g., sales, purchases, cash
receipts, cash payments).

 Challenges: Difficult to prepare accurate financial statements. Prone to errors and fraud.

4. Manufacturing Accounts

 Purpose: To determine the cost of manufacturing goods.

 Structure:

o Direct Materials: Raw materials consumed in the manufacturing process.

o Direct Labour: Wages paid to production workers.

o Direct Expenses: Expenses directly related to production (e.g., royalties, special machine hire).

o Prime Cost: Direct Materials + Direct Labour + Direct Expenses.

 o Indirect Manufacturing Costs (Overheads): Costs indirectly related to production (e.g., rent of factory,
depreciation of factory equipment, factory supervisor's salary).

o Total Manufacturing Cost: Prime Cost + Indirect Manufacturing Costs.

o Work-in-Progress (WIP): Partially completed goods. Opening WIP is added, and Closing WIP is
deducted to arrive at the cost of goods manufactured.

 Cost of Goods Manufactured (COGM): The total cost of goods completed during the period. This figure is then
transferred to the trading account.

5. Control Accounts

 Purpose: To summarize and control the balances of subsidiary ledgers (e.g., sales ledger, purchases ledger).

 Sales Ledger Control Account:

o Debit Side: Credit sales, sales returns, dishonoured cheques, bad debts.

o Credit Side: Cash received from customers, discounts allowed.

o Balance: Represents the total amount owed by customers.

 Purchases Ledger Control Account:

o Debit Side: Cash paid to suppliers, discounts received, purchase returns.

o Credit Side: Credit purchases.

o Balance: Represents the total amount owed to suppliers.

 Reconciliation: The balance of the control account should agree with the total of the individual balances in the
subsidiary ledger. Discrepancies indicate errors.

 Advantages: Helps in detecting errors and fraud, provides a summary of outstanding balances.

Key Tips for Success:

 Practice, practice, practice! Work through as many past papers as possible.

 Understand the underlying principles. Don't just memorize the formats.

 Pay attention to detail. Small errors can lead to significant discrepancies.

 Manage your time effectively during the exam.