IGCSEAccountingCambridge (CIE)Revision Notes2. Sources & Recording of DataDouble Entry Book-Keeping with Ledger AccountsInterpreting Accounts & Their Balances

Syllabus Edition

First teaching 2025

First exams 2027

Interpreting Accounts & Their Balances (Cambridge (CIE) IGCSE Accounting): Revision Note

Exam code: 0452 & 0985

Dan Finlay

Written by: Dan Finlay

Reviewed by: Lucy Kirkham

Updated on

Cambridge (CIE) AccountingCambridge (CIE) Accounting

Accounts for assets

How do I interpret asset accounts in the ledger?

Non-current assets

  • The business has an account for each type of non-current assets in the general ledger

    • Such as vehicles, machinery, office equipment etc

The balance is:

  • Always on the debit side

The account is debited when:

  • Non-current assets are purchased

The account is credited when:

  • Non-current assets are sold

Trade receivables

  • The business has an account for each credit customer in the sales ledger

The balance is:

  • Usually on the debit side

  • May be on the credit side if:

    • the credit customer has returned goods to the business that have already been paid for

    • the credit customer has overpaid

The account is debited when:

  • The customer buys more goods on credit

  • Interest is charged for an overdue balance

  • A cheque received from a customer is dishonoured

  • The business refunds the customer for goods that have already been paid for

The account is credited when:

  • The credit customer pays an invoice to the business

  • Cash discount is allowed to the customer by the business

  • The customer returns some goods

Inventory

  • The business has an account for inventory in the general ledger

    • It is not used day-to-day

The balance is:

  • Always on the debit side

The account is debited when:

  • Transferring the closing inventory from the statement of profit and loss

The account is credited when:

  • Transferring the opening inventory to the statement of profit and loss

Bank

  • The business has an account for bank in the general ledger

The balance is:

  • On the debit side if there is money in the bank

  • On the credit side if it is overdrawn

The account is debited when:

  • The business receives money in the bank

  • The business deposits cash into the bank

The account is credited when:

  • The business pays money from the bank

  • The business withdraws cash from the bank

Cash (and petty cash)

  • The business has an account for cash in the general ledger

  • The business might also have a petty cash account

The balance is:

  • Always on the debit side

The account is debited when:

  • The business receives cash

The account is credited when:

  • The business pays cash

Accounts for liabilities

How do I interpret liability accounts in the ledger?

Loan accounts

  • The business has an account for each loan in the general ledger

The balance is:

  • Always on the credit side

The account is debited when:

  • The business repays some of the initial amount

The account is credited when:

  • The business takes out the loan

Trade payables

  • The business has an account for each credit supplier in the purchases ledger

The balance is:

  • Usually on the credit side

  • May be on the debit side if:

    • the business has returned goods to the supplier that have already been paid for

    • the business has overpaid the supplier

The account is debited when:

  • The business pays an invoice to the credit supplier 

  • Cash discount is received by the business from the supplier

  • The business returns some goods

The account is credited when:

  • The business buys more goods on credit

  • Interest is charged for an overdue balance

  • A cheque sent to a supplier is returned

  • The supplier refunds the business for goods that have already been paid for

Accounts for expenses & incomes

How do I interpret expense accounts in the ledger

Purchases

  • The business has an account for purchases in the general ledger

    • It is used to record the purchases of goods

The balance is:

  • Always on the debit side

The account is debited when:

  • The business buys goods

The account is credited when:

  • The balance is being transferred to the statement of profit and loss

Purchases returns (returns outwards)

  • The business has an account for purchases returns in the general ledger

    • It is used to record the returns of goods to suppliers

    • It is can be viewed as the entries that would reduce the purchases account

The balance is:

  • Always on the credit side

The account is debited when:

  • The balance is being transferred to the statement of profit and loss

The account is credited when:

  • The business returns goods to suppliers

Expense accounts

  • The business has an account for each expense in the general ledger

    • Expenses include discount allowed, rent paid, carriage inwards, carriage outwards, etc

The balance is:

  • Usually on the debit side

  • May be on the credit side if the business is in arrears

The account is debited when:

  • The business pays or allows the expense

The account is credited when:

  • The balance is being transferred to the statement of profit and loss

How do I interpret income/revenue accounts in the ledger?

Sales

  • The business has an account for sales in the general ledger

    • It is used to record the sales of goods

The balance is:

  • Always on the credit side

The account is debited when:

  • The balance is being transferred to the statement of profit and loss

The account is credited when:

  • The business sells goods

Sales returns (returns inwards)

  • The business has an account for sales returns in the general ledger

    • It is used to record the returns of goods from customers

    • It is can be viewed as the entries that would reduce the sales account

The balance is:

  • Always on the debit side

The account is debited when:

  • The business receives returned goods from customers

The account is credited when:

  • The balance is being transferred to the statement of profit and loss

Income/revenue accounts

  • The business has an account for each form of income or revenue in the general ledger

    • Incomes include discount received, rent received, etc

The balance is:

  • Usually on the credit side

  • May be on the debit side if the business is owed money

The account is debited when:

  • The balance is being transferred to the statement of profit and loss

The account is credited when:

  • The business receives the income

Accounts for capital & drawings

How do I interpret capital/equity accounts in the ledger?

Drawings

  • The business has an account for drawings in the general ledger

The balance is:

  • Always on the debit side

The account is debited when:

  • The owner takes money from the business for personal use

  • The owner takes goods from the business for personal use

  • The owner transfers a non-current asset from the business to themselves

The account is credited when:

  • The balance is being transferred to capital account

Capital

  • The business has an account for capital in the general ledger

The balance is:

  • Always on the credit side

The account is debited when:

  • A loss is being transferred from the statement of profit or loss

  • The balance from the drawings account is being transferred

The account is credited when:

  • A profit is being transferred from the statement of profit or loss

  • The owner introduces money into the business

  • The owner transfers a personal non-current asset to the business

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    Author
    Reviewer
    Dan Finlay

    Author: Dan Finlay

    Expertise: Maths Subject Lead

    Dan graduated from the University of Oxford with a First class degree in mathematics. As well as teaching maths for over 8 years, Dan has marked a range of exams for Edexcel, tutored students and taught A Level Accounting. Dan has a keen interest in statistics and probability and their real-life applications.

    Lucy Kirkham

    Reviewer: Lucy Kirkham

    Expertise: Head of Content Creation

    Lucy has been a passionate Maths teacher for over 12 years, teaching maths across the UK and abroad helping to engage, interest and develop confidence in the subject at all levels.Working as a Head of Department and then Director of Maths, Lucy has advised schools and academy trusts in both Scotland and the East Midlands, where her role was to support and coach teachers to improve Maths teaching for all.