A Level Accounting 9706 — all four papers, free.
A complete study guide for Cambridge International AS & A Level Accounting 9706, mapped to all 17 sub-topics of the official syllabus for exams in 2026–2028.
How to use it: Accounting rewards accuracy and speed above argument. The same statement layouts recur in every paper, so the fastest route to marks is to learn the formats until you can write them blank from memory, then drill full questions to time.
📄 8 plain-English chapter handouts →✎ Practice & self-test →
The papers
| Paper | Covers | Format | Time / marks | Weighting |
|---|---|---|---|---|
| Paper 1 — Multiple Choice | Sections 1–2 (AS) | 30 multiple-choice questions | 1 hour · 30 marks | 28% of AS · 14% of A Level |
| Paper 2 — Fundamentals of Accounting | Sections 1–2 (AS) | Four structured questions | 1 h 45 min · 90 marks | 72% of AS · 36% of A Level |
| Paper 3 — Financial Accounting | Section 3 (A2) | Three structured questions | 1 h 30 min · 75 marks | 30% of A Level |
| Paper 4 — Cost and Management Accounting | Section 4 (A2) | Two structured questions | 1 hour · 50 marks | 20% of A Level |
AS knowledge is assumed on both A2 papers — the AS material never stops being examinable.
Statement formats
Financial accounting (AS)
1.1Types of business entity
| Entity | Key accounting features |
|---|---|
| Sole trader | One capital account; drawings deducted from capital |
| Partnership | Appropriation account; fixed capital accounts plus current accounts; profit shared in the agreed ratio. Without an agreement, the default is equal shares, no salaries and no interest |
| Limited company | Share capital (ordinary and preference), reserves, retained earnings; dividends appropriated, debenture interest expensed |
| Non-profit / clubs | Receipts and payments account; income and expenditure account; surplus/deficit; accumulated fund |
| Manufacturing business | Manufacturing account producing prime cost and cost of production |
1.2The accounting system
Double entry: every transaction has equal debit and credit entries. DEAD CLIC — Debit Expenses, Assets, Drawings; Credit Liabilities, Income, Capital.
Books of prime entry: sales, purchases, sales returns and purchases returns journals; cash book; petty cash book (imprest system); general journal.
The trial balance checks arithmetical accuracy only. Errors not revealed: omission, commission, principle, original entry, complete reversal, compensating. One-sided errors go to a suspense account.
A payment for a new delivery van, $18 000, was debited to Motor Expenses. Identify the error and its effect on profit.
- Error of principle — capital expenditure treated as revenue expenditure.
- Expenses are overstated by $18 000, so profit is understated by $18 000.
- Correction: debit Motor Vehicles, credit Motor Expenses $18 000. Non-current assets rise, and depreciation must then be charged on the van.
1.3Accounting for non-current assets
| Method | Calculation | Suits |
|---|---|---|
| Straight line | (cost − residual value) ÷ useful life | Assets used evenly, e.g. buildings, fixtures |
| Reducing balance | A fixed % of the carrying amount each year | Assets losing value fastest early, e.g. vehicles, IT |
| Revaluation | Opening value + additions − closing value | Many small items, e.g. loose tools |
Machinery costing $45 000 with accumulated depreciation of $31 500 is sold for $10 000. Calculate the profit or loss on disposal.
- Carrying amount = 45 000 − 31 500 = $13 500
- Proceeds 10 000 − 13 500 = loss on disposal of $3500, charged to the income statement
- Disposal account: debit cost, credit accumulated depreciation and proceeds; the balancing figure is the profit or loss.
1.4Reconciliation and verification
Bank reconciliation: first update the cash book for items appearing only on the statement (bank charges, direct debits, credit transfers, dishonoured cheques, and the business's own errors). Then reconcile the timing differences:
Control accounts summarise the sales and purchases ledgers and act as an independent check on the individual accounts, helping to locate errors and deter fraud.
Opening receivables $42 000; credit sales $310 000; receipts $295 000; sales returns $6000; discounts allowed $4500; irrecoverable debts $2200; contra with purchases ledger $1800. Find the closing balance.
- Debits: 42 000 + 310 000 = 352 000
- Credits: 295 000 + 6000 + 4500 + 2200 + 1800 = 309 500
- Closing balance = 352 000 − 309 500 = $42 500
1.5Preparation of financial statements
Prepare statements for sole traders, partnerships, limited companies, clubs and manufacturing businesses — applying all year-end adjustments.
- Accruals — expense incurred but unpaid: add to the expense, show as a current liability.
- Prepayments — paid in advance: subtract from the expense, show as a current asset.
- Depreciation — charge for the year to the income statement; accumulate against the asset.
- Irrecoverable debts and allowance — write off the debt; only the movement in the allowance goes to the income statement, while the full allowance reduces receivables.
- Closing inventory — at the lower of cost and net realisable value; reduces cost of sales and appears as a current asset.
Profit for the year $96 000. Ali and Bilal share profits 2 : 1. Ali has a salary of $14 000; interest on capital is $6000 (Ali) and $4000 (Bilal); interest on drawings is $1000 (Ali) and $800 (Bilal).
- Profit available = 96 000 + 1800 (interest on drawings) − 14 000 − 10 000 = $73 800
- Ali = 2/3 × 73 800 = $49 200; Bilal = 1/3 × 73 800 = $24 600
- Total to Ali = 14 000 + 6000 + 49 200 − 1000 = $68 200; to Bilal = 4000 + 24 600 − 800 = $27 800
- Check: 68 200 + 27 800 = 96 000 ✓
1.6Analysis and communication of accounting information
Calculate and interpret the profitability, liquidity and efficiency ratios (see the ratio reference). Communicate findings clearly to the interested party — owners, lenders, suppliers, employees, government.
Cost and management accounting (AS)
2.1Costs and cost behaviour
Classification: fixed, variable, semi-variable and stepped costs; direct vs indirect; product vs period costs.
break-even output = fixed costs ÷ contribution per unit
margin of safety = actual output − break-even output
output for target profit = (fixed costs + target profit) ÷ contribution per unit
Fixed costs $240 000; price $80; variable cost $50. Find break-even output, and the output needed for a target profit of $90 000.
- Contribution = 80 − 50 = $30
- Break-even = 240 000 ÷ 30 = 8000 units
- For $90 000 profit: (240 000 + 90 000) ÷ 30 = 11 000 units
2.2Traditional costing methods
| Marginal costing | Absorption costing | |
|---|---|---|
| Fixed overheads | Treated as a period cost, written off in full | Absorbed into the cost of each unit |
| Inventory valued at | Variable cost only | Variable cost + absorbed fixed overhead |
| Best for | Short-term decisions: special orders, make-or-buy, discontinuing a product | Financial reporting (required by accounting standards) and full-cost pricing |
Overhead absorption: allocate and apportion overheads to cost centres, then absorb into units using a rate per labour hour, machine hour or unit. Compare absorbed overhead with actual overhead to find over- or under-absorption.
Budgeted overheads $180 000 and budgeted machine hours 12 000. Actual overheads were $186 000 and actual hours 13 000. Calculate the absorption rate and the over/under absorption.
- Absorption rate = 180 000 ÷ 12 000 = $15 per machine hour
- Overhead absorbed = 15 × 13 000 = $195 000
- Absorbed 195 000 − actual 186 000 = $9000 over-absorbed, which is credited to the income statement
Financial accounting (A2)
3.1Preparation of financial statements (A2)
At A2 the statements become more demanding: limited company statements in published format, statements of cash flows, and statements of changes in equity.
- Operating activities: start from profit from operations, add back non-cash items (depreciation, loss on disposal), adjust for changes in inventory, receivables and payables, then deduct interest and tax paid.
- Investing activities: purchases and sales of non-current assets.
- Financing activities: share issues, loans raised or repaid, dividends paid.
Profit from operations $120 000; depreciation $28 000; inventory rose by $9000; receivables fell by $5000; payables fell by $7000. Find cash generated from operations.
- Start: 120 000
- Add back depreciation (non-cash): + 28 000 → 148 000
- Inventory increase uses cash: − 9000 → 139 000
- Receivables decrease releases cash: + 5000 → 144 000
- Payables decrease uses cash: − 7000 → $137 000
3.2Regulatory and ethical considerations
Accounting concepts: business entity, going concern, accruals/matching, consistency, prudence, materiality, realisation, duality, historic cost, money measurement, substance over form.
International accounting standards provide comparability between companies and countries, protect users of accounts, and constrain creative accounting — though they add compliance cost and complexity.
Ethics: integrity, objectivity, professional competence and due care, confidentiality, professional behaviour. Pressure to manipulate figures — overvaluing inventory, delaying expenses, recognising revenue early — must be resisted, since users rely on the statements to make decisions.
3.3Business acquisition and merger
Understand the accounting when a business is acquired or partnerships amalgamate: valuation of assets and liabilities, treatment of goodwill, and the entries on admission, retirement or change in profit-sharing ratio.
A business is bought for $500 000. Its assets are valued at $620 000 and liabilities at $180 000. Calculate goodwill.
- Net assets = 620 000 − 180 000 = $440 000
- Goodwill = purchase price − net assets = 500 000 − 440 000 = $60 000
3.4Computerised accounting systems
| Advantages | Disadvantages |
|---|---|
| Faster processing; fewer arithmetical errors; automatic ledgers, control accounts and reports; easier analysis; integrates with inventory and payroll; instant access | Cost of hardware, software and training; risk of data loss, hacking and fraud; staff resistance or redundancy; garbage in, garbage out — data entry errors still produce wrong results; dependence on power and systems |
3.5Analysis and communication (A2)
A2 adds investment ratios — earnings per share, price/earnings ratio, dividend yield, dividend cover — and requires you to write a reasoned report for a specific user.
Limitations of ratio analysis: historical data; different accounting policies; the effect of inflation; window dressing; the exclusion of non-financial factors such as management quality, staff morale and market conditions; and the need for genuinely comparable businesses.
Every ratio formula
| Category | Ratio | Formula |
|---|---|---|
| Profitability | Gross margin | (gross profit ÷ revenue) × 100 |
| Mark-up | (gross profit ÷ cost of sales) × 100 | |
| Profit margin | (profit for the year ÷ revenue) × 100 | |
| ROCE | (profit before interest ÷ capital employed) × 100 | |
| Liquidity | Current ratio | current assets ÷ current liabilities |
| Acid test | (current assets − inventory) ÷ current liabilities | |
| Efficiency | Inventory turnover (times) | cost of sales ÷ average inventory |
| Inventory turnover (days) | (average inventory ÷ cost of sales) × 365 | |
| Trade receivables (days) | (trade receivables ÷ credit sales) × 365 | |
| Trade payables (days) | (trade payables ÷ credit purchases) × 365 | |
| Gearing | Gearing | (non-current liabilities ÷ capital employed) × 100 |
| Investment | Earnings per share | profit after tax ÷ number of ordinary shares |
| Price/earnings ratio | market price per share ÷ earnings per share | |
| Dividend yield | (dividend per share ÷ market price) × 100 | |
| Dividend cover | profit after tax ÷ total ordinary dividend |
Profit after tax $450 000; 600 000 ordinary shares; market price $9.00; total dividend $180 000. Calculate EPS, P/E, dividend per share, dividend yield and dividend cover.
- EPS = 450 000 ÷ 600 000 = $0.75
- P/E = 9.00 ÷ 0.75 = 12
- Dividend per share = 180 000 ÷ 600 000 = $0.30
- Dividend yield = (0.30 ÷ 9.00) × 100 = 3.33%
- Dividend cover = 450 000 ÷ 180 000 = 2.5 times — profit covers the dividend 2.5 times over, so it looks sustainable
Cost and management accounting (A2)
4.1Activity based costing (ABC)
| Advantages | Disadvantages |
|---|---|
| More accurate product costs, especially where overheads are large and products differ in complexity; better pricing and product-mix decisions; highlights costly activities for reduction | Time-consuming and expensive to set up; choosing cost drivers involves judgement; may be unnecessary where overheads are small or products are similar |
Set-up costs total $120 000 for 400 set-ups. Product A requires 40 set-ups for 8000 units; Product B requires 160 set-ups for 8000 units. Compare the set-up cost per unit.
- Cost per set-up = 120 000 ÷ 400 = $300
- Product A: 40 × 300 = $12 000 ÷ 8000 units = $1.50 per unit
- Product B: 160 × 300 = $48 000 ÷ 8000 units = $6.00 per unit
- A volume-based rate would have charged both products the same, understating B's cost and overstating A's — which could lead to mispricing and dropping the wrong product.
4.2Standard costing
A standard cost is a predetermined cost used as a benchmark. Variance analysis compares actual results with standard to explain the difference.
Standard: 3 kg of material per unit at $4/kg. Actual production 1000 units used 3200 kg costing $12 160. Calculate the price and usage variances.
- Actual price per kg = 12 160 ÷ 3200 = $3.80
- Price variance = (4.00 − 3.80) × 3200 = $640 favourable
- Standard quantity for actual output = 3 × 1000 = 3000 kg
- Usage variance = (3000 − 3200) × 4.00 = $800 adverse
- Net total = 800 − 640 = $160 adverse (check: standard cost 3000 × 4 = 12 000 vs actual 12 160 ✓)
4.3Budgeting and budgetary control
Types: sales, production, materials purchases, labour, cash and master budgets. Approaches: incremental, zero-based (every item justified from scratch) and flexed budgets (restated at the actual level of activity).
Behavioural aspects: participation in budget-setting improves motivation and realism, but risks budgetary slack; imposed budgets are faster but can demotivate.
4.4Investment appraisal
| Method | What it measures | Limitation |
|---|---|---|
| Payback period | Time to recover the outlay | Ignores cash flows after payback and the time value of money |
| Accounting rate of return | (average annual profit ÷ initial investment) × 100 | Uses profit not cash; ignores timing |
| Net present value | Discounted cash flows − outlay | Sensitive to the discount rate chosen; cash flows are estimates |
| Internal rate of return | The discount rate at which NPV = 0 | Can be complex; may give multiple answers with unusual cash flows |
An investment of $250 000 returns $100 000 a year for three years. Using discount factors 0.909, 0.826 and 0.751, calculate the NPV and advise.
- Year 1: 100 000 × 0.909 = 90 900
- Year 2: 100 000 × 0.826 = 82 600
- Year 3: 100 000 × 0.751 = 75 100
- Present value total = 248 600; NPV = 248 600 − 250 000 = −$1400
- Advice: the NPV is negative, so at a 10% required return the project does not quite cover its cost of capital and should be rejected on financial grounds. But it is marginal — a small improvement in cash flows, a longer asset life, or strategic benefits could reverse the decision.
Study planner & progress
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Free past papers & how to revise
Official (free)
- Cambridge International — 9706 subject page: syllabus, specimen papers, past papers, mark schemes and examiner reports.
- Examiner reports name the exact questions candidates got wrong each series — read them for every paper you attempt.
Free archives
- GCE Guide · PastPapers.co — full CAIE past-paper archives.
- Physics & Maths Tutor — topic-sorted questions.
How to revise this subject
- Write the statement formats out blank once a week until they are automatic — that alone converts a large block of marks.
- Show all workings as a clearly labelled note. Own-figure and method marks are generous when the examiner can follow you.
- Drill the adjustments: accruals, prepayments, depreciation, irrecoverable debts, inventory. They appear in almost every financial statement question.
- For A2, learn why each costing method gives a different answer — marginal vs absorption, and traditional vs ABC. The comparison is where the analysis marks are.
- Always interpret ratios: state the direction of change, a plausible cause, and a recommended action.