Accounting for end of period adjustments: Edexcel IGCSE Accounting Complete Notes

End of period adjustments are like tidying up your room before someone takes a photograph. The books need to reflect reality at the year end, and that means making adjustments for items that have not yet been recorded or that span more than one accounting period.

The Edexcel IGCSE Accounting accounting for end of period adjustments section (4AC1) covers four areas: the application of accounting concepts, depreciation adjustments, irrecoverable debts adjustments, and other receivables and payables adjustments. If you have studied the introduction to bookkeeping section, some of these topics will look familiar, because the same principles appear in both sections. The difference is that here you are applying them in the context of preparing final accounts at the year end. These edexcel igcse accounting revision notes provide the depth and worked examples you need for the exam.

Application of accounting concepts

The six accounting concepts you learned in Section 1 are not just theory. They drive every adjustment you make at the year end. Think of them as the rules of the game: they tell you when to record something, how much to record, and what to do when you are uncertain.

Concept	How it applies to end of period adjustments
Accruals	Expenses and income must be matched to the period they relate to, not when cash changes hands. This is why you adjust for prepayments and accruals.
Prudence	Losses should be recognised as soon as they are foreseen. This is why you create a provision for irrecoverable debts and why you depreciate non-current assets.
Consistency	The same depreciation method and rates should be applied from year to year. Changing methods without good reason undermines comparability.
Materiality	Small items that would make no difference to a user's understanding can be expensed immediately, even if they have a life longer than one year.
Money measurement	Only adjustments that can be expressed in monetary terms are recorded. You cannot depreciate employee skills, for example.
Business entity	Adjustments are made from the perspective of the business, not the owner. The owner's personal expenses are drawings, not business costs.

Think of the accruals concept as making sure every month pays its fair share. Imagine you and your flatmates split the electricity bill. If the bill arrives in January but covers October through December, those three months should each bear a third of the cost. That is exactly what the accruals concept does for a business: it ensures the expense sits in the period it was actually incurred, not the period the invoice happens to arrive.

Depreciation adjustments at the year end

Depreciation is the process of spreading the cost of a non-current asset over its useful life. At the year end, you need to calculate the depreciation charge for the period, record it in the books, and adjust the carrying amount of the asset in the statement of financial position.

Straight-line method

Annual depreciation = (Cost - Residual value) / Useful life

This method is like paying a fixed monthly amount on a phone plan. The charge is the same every year, which makes budgeting straightforward.

Reducing balance method

Annual depreciation = Carrying amount at start of year x Rate

This method is like the way a new car loses value. It drops sharply in the first year, then the decline slows down as the car ages. Businesses use this method for assets that lose most of their value early.

Worked example: depreciation over three years

Equipment costs 24,000 with a residual value of 4,000 and a useful life of 5 years. The business uses the straight-line method.

Annual depreciation = (24,000 - 4,000) / 5 = 4,000 per year

Year	Depreciation charge	Accumulated depreciation	Carrying amount
1	4,000	4,000	20,000
2	4,000	8,000	16,000
3	4,000	12,000	12,000

Recording depreciation

The double entry for the annual depreciation charge is:

Debit: Depreciation expense (income statement)
Credit: Provision for depreciation (reduces the asset's carrying amount in the statement of financial position)

Disposal of a non-current asset

When an asset is sold, you calculate the profit or loss on disposal by comparing the sale proceeds with the carrying amount (cost minus accumulated depreciation).

Worked example: The equipment above is sold at the end of Year 3 for 14,000.

Cost: 24,000
Accumulated depreciation after 3 years: 12,000
Carrying amount: 12,000
Sale proceeds: 14,000
Profit on disposal: 14,000 - 12,000 = 2,000

The 2,000 profit is added to income in the income statement. If the proceeds had been 10,000 instead, there would have been a 2,000 loss, which would be an expense in the income statement.

Common mistake: Forgetting to stop depreciating an asset in the year of disposal. Once an asset is sold, no further depreciation is charged. Some exam questions test whether you apply a full year's depreciation in the year of sale or none at all. Read the question carefully for the business's stated policy.

Irrecoverable debts adjustments

At the year end, you need to deal with debts that will not be collected and maintain the general provision for future losses.

Writing off a specific irrecoverable debt

If a customer (say R. Wilson) owes 1,500 and the business decides the amount will never be collected:

Debit: Irrecoverable debts expense 1,500
Credit: Trade receivables (R. Wilson) 1,500

Think of it like crossing a name off your party guest list. R. Wilson was on the list (trade receivables), but they are not coming (not going to pay), so you remove them and record the loss.

Adjusting the provision for irrecoverable debts

After writing off specific debts, the remaining trade receivables are used to calculate the new provision.

Worked example:

Trade receivables before write-off: 50,000
Specific debt written off: 1,500
Trade receivables after write-off: 48,500
Provision rate: 4%
New provision required: 48,500 x 4% = 1,940
Existing provision: 2,200
Decrease in provision: 2,200 - 1,940 = 260

The 260 decrease is credited to the income statement (a reduction in the expense). The net effect on the income statement is the 1,500 write-off minus the 260 decrease in provision, giving a total irrecoverable debts charge of 1,240.

Other receivables and payables adjustments

These adjustments ensure that the financial statements reflect the true expense or income for the period, in accordance with the accruals concept.

Prepayments (other receivables)

A prepayment arises when a business has paid for something in advance. The portion that relates to the next accounting period is a current asset at the year end.

Worked example: A business pays 9,600 for a 12-month insurance policy on 1 April. The accounting year ends on 31 December.

Months covered in this accounting year: April to December = 9 months
Insurance expense for the year: 9/12 x 9,600 = 7,200
Prepayment at year end (Jan - Mar next year): 3/12 x 9,600 = 2,400

The 7,200 goes in the income statement as an expense. The 2,400 goes in the statement of financial position as an other receivable (current asset).

Accruals (other payables)

An accrual arises when a business has consumed something but has not yet received the bill. Think of it like eating at a restaurant before the bill arrives. You have already used the service, so the cost belongs in this period even though you have not paid yet.

Worked example: A business's accounting year ends on 31 December. The electricity bill for the quarter October to December (1,350) has not yet been received.

Electricity expense to add to the income statement: 1,350
Accrual at year end: 1,350 (shown as other payables / current liability in the statement of financial position)

The double entry for adjustments

Adjustment	Debit	Credit
Prepayment	Other receivables (current asset)	Expense account (reduces the charge)
Accrual	Expense account (increases the charge)	Other payables (current liability)

Exam tip: Draw a timeline. If the question says rent is paid on 1 July for 12 months and the year end is 31 December, mark the 12 months on a line and shade the months that fall in this year versus next year. This visual approach prevents the most common error: putting the wrong number of months in the prepayment or the accrual.

Self-check questions

Which accounting concept explains why you create a provision for irrecoverable debts even when you do not know the exact amount that will not be collected?
A machine costs 18,000. It has a residual value of 3,000 and a useful life of 6 years. Calculate the annual depreciation charge using the straight-line method.
Using the same machine, calculate the depreciation charge for Year 1 and Year 2 using the reducing balance method at 25%.
Trade receivables total 36,000 after writing off a specific debt of 800. The provision rate is 5% and the existing provision is 1,600. Calculate the new provision and the adjustment required.
A business pays 6,000 rent on 1 September for 12 months. The year end is 31 December. Calculate the rent expense for the year and the prepayment at year end.
Wages of 2,100 for the last week of December have not yet been paid. State the double entry to record this accrual.

The accounting for end of period adjustments edexcel igcse section is where precision determines your grade. Each adjustment follows a clear procedure, and the exam tests whether you can apply that procedure correctly in context. The igcse 4ac1 accounting for end of period adjustments questions on Paper 2 typically give you a trial balance and a list of adjustments to apply before preparing the financial statements. Work through the adjustments methodically, one at a time, and the final figures will follow. These edexcel igcse accounting practice questions reward students who take a structured approach, and these edexcel igcse accounting explained techniques, combined with thorough edexcel igcse accounting notes, will give you the confidence to handle whatever adjustments the exam presents.