Apply accounting concepts to financial records
Use the entity, measurement, going-concern, duality and historic-cost concepts to explain why entries are recorded consistently.
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. These lessons cover Topic 1.2 only. The 2029 syllabus has a separate document and is not mapped here. Practice is self-checked, not an official Cambridge grade; timed-paper practice and human subject-teacher review remain outstanding.
Before you begin
- Topic 1.1 introduces business forms and finance. In these lessons, keep each transaction tied to its source evidence and record both sides of its effect.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
A business records a machine's purchase in its accounts. Which concept supports separating the machine from the owner's private property?
What you will learn
- Apply business entity and money measurement
- Explain historic cost and going concern
- Use duality to justify a transaction's two effects
Define the reporting boundary and evidence
The business entity concept separates the business's records from the owner's private transactions. Money measurement records items that can be expressed in monetary terms; important non-financial information may therefore need separate reporting.
Historic cost records an asset using its transaction cost as the starting measurement, subject to later accounting treatment. Going concern assumes the business will continue operating for the foreseeable future unless evidence indicates otherwise.
Duality connects resources and claims
Duality recognises that each transaction has equal two-sided effects in the accounting system. Buying equipment with cash exchanges one asset for another; taking a loan increases cash and a liability.
Use the concept that best explains the case. Do not claim that historic cost means an asset's current value never changes, or that going concern guarantees a business will survive.
Pause and explain
A business buys equipment for $8,000 cash. What are the two asset effects under duality?
Worked example
The owner pays a personal electricity bill from business bank funds. Explain which concept is relevant and the business-record implication.
Show the worked solution
- The bill is the owner's private cost, not the business's expense.
- The entity concept separates owner and business transactions.
- Record the withdrawal as drawings or the appropriate owner balance, rather than a business operating expense.
Answer The business entity concept applies. The private bill should not be treated as a business expense; record the amount as an owner withdrawal in the appropriate account.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A café has a loyal following but no reliable monetary measure for its reputation. Why may the reputation not appear as a monetary asset in ordinary records?
Give me a hint
Apply the money-measurement concept without dismissing the reputation's importance.
Compare my reasoning
- Financial records use monetary measures.
- The café cannot reliably measure the reputation in money from the information given.
- It may still be useful to describe reputation in non-financial reporting.
Money measurement limits what appears as a monetary item in the accounts. The reputation can matter to decisions even if it is not recognised as a measured asset in this example.
Look for these in your work
- Concept applied
- Measurement limit explained
- Non-financial importance retained
A business bought a van for $18,000 two years ago. Explain what historic cost tells you and what it does not tell you.
Give me a hint
Separate the original transaction price from later measurement.
Compare my reasoning
- The amount records the van's original purchase cost.
- It does not necessarily show its current market value or current carrying amount.
- Later depreciation or revaluation treatment may affect the reported amount under relevant rules.
Historic cost identifies the original transaction cost of $18,000. It does not by itself establish the van's current market value or its carrying amount after subsequent accounting treatment.
Look for these in your work
- Original cost stated
- Current value distinguished
- Subsequent treatment acknowledged
A storm closes a business for a week. Does this fact alone mean the going-concern assumption must be abandoned?
Give me a hint
Consider the assumption about the foreseeable future, not one temporary interruption in isolation.
Compare my reasoning
- A temporary closure is relevant evidence but does not alone establish that operations will cease.
- Assess resources, reopening plans, cash flow and any lasting damage.
- If continuation is no longer realistic, the basis of preparation may need reconsideration.
No. A one-week closure alone does not establish that the business cannot continue. Evaluate the wider evidence; abandon the assumption only if continuation is no longer realistic.
Look for these in your work
- Single event not overinterpreted
- Relevant evidence identified
- Conclusion qualified
Common mistakes
- Including the owner's private spending as a business expense
- Treating money measurement as proof that unmeasured factors do not matter
- Calling historic cost the asset's guaranteed current market value
What can you explain now?
Which concept separates the business's transactions from the owner's private spending?
Compare with the explanation
Business entity
It defines a distinct accounting boundary for the business.
After trying it yourself, choose your next review. This is your self-assessment.
Your review choice appears on Today. Sign in to sync it across devices.
Make it stick
What does the business entity concept keep separate?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.