AAT Level 2 Business Environment cheat sheet

Business environment divides into internal (owners, employees, resources) and external (political, economic, social, technological, legal, environmental) factors.

PESTLE = Political, Economic, Social, Technological, Legal, Environmental - used to scan macro-environmental forces.

SWOT = Strengths, Weaknesses (internal), Opportunities, Threats (external).

Micro-environment: customers, suppliers, competitors, intermediaries - directly influenced by the business.

Macro-environment: economy-wide forces the business cannot control but must respond to.

Economic cycle phases: boom, recession, recovery - demand, employment and interest rates shift with each phase.

Inflation erodes purchasing power; interest rate rises raise borrowing costs and reduce consumer spending.

Stakeholders include owners, employees, customers, suppliers, lenders, government and local community; each has different objectives.

Sole trader: one owner, unlimited liability, no separate legal personality, taxed on owner's income.

Partnership: two or more owners, unlimited liability unless a limited liability partnership (LLP) is used.

Limited company: separate legal entity, owners have limited liability, ownership divided into shares.

Private limited company (Ltd) cannot offer shares to the public; public limited company (plc) can, subject to minimum share capital rules.

Not-for-profit organisations include charities, mutuals and public sector bodies; surplus is reinvested, not distributed as profit.

Span of control = number of subordinates directly reporting to one manager; a narrow span gives tall structures, a wide span gives flat ones.

Chain of command is the line of authority from top to bottom; delegation passes authority downward while accountability stays with the delegator.

Centralisation keeps decision-making at head office; decentralisation delegates decisions to local or functional units.

Accounting equation: Assets = Capital + Liabilities; it must hold after every transaction.

Double-entry rule: every transaction has equal debits and credits; debit entries increase assets and expenses, credit entries increase liabilities, capital and income.

Books of prime entry: sales day book, purchases day book, cash book, petty cash book, sales returns day book, purchases returns day book, general journal.

Trial balance lists debit and credit balances; it proves arithmetic equality, not correctness - errors of principle, omission, commission and compensating errors still balance.

Gross profit = Revenue − Cost of sales; Net profit = Gross profit − Expenses.

Working capital = Current assets − Current liabilities; it measures short-term liquidity.

Financial accounting reports to external users under regulation; management accounting reports internally for planning and control, with no prescribed format.

Internal controls include segregation of duties, authorisation limits, bank reconciliations and physical safeguards such as locked cash storage.

Five fundamental ethical principles: integrity, objectivity, professional competence and due care, confidentiality, professional behaviour.

Integrity means being straightforward and honest in all professional and business relationships.

Objectivity requires not allowing bias, conflict of interest or undue influence of others to override professional judgement.

Confidentiality: information acquired through work is not disclosed without authority unless there is a legal or professional right or duty to disclose.

Threats to compliance include self-interest, self-review, advocacy, familiarity and intimidation; safeguards must be applied or the engagement declined.

Regulatory bodies for UK accountancy include the FRC (oversight and standards), and professional bodies such as ICAEW, ACCA and AAT that set ethical and CPD requirements.

Companies legislation (Companies Act 2006) requires true and fair financial statements, filing at Companies House and independent audit for qualifying companies.

Money laundering reporting: suspicious activity is reported internally to the nominated officer, who may submit a suspicious activity report to the National Crime Agency.

Business environment divides into internal (owners, employees, resources) and external (political, economic, social, technological, legal, environmental) factors.

PESTLE = Political, Economic, Social, Technological, Legal, Environmental - used to scan macro-environmental forces.

SWOT = Strengths, Weaknesses (internal), Opportunities, Threats (external).

Micro-environment: customers, suppliers, competitors, intermediaries - directly influenced by the business.

Macro-environment: economy-wide forces the business cannot control but must respond to.

Economic cycle phases: boom, recession, recovery - demand, employment and interest rates shift with each phase.

Inflation erodes purchasing power; interest rate rises raise borrowing costs and reduce consumer spending.

Stakeholders include owners, employees, customers, suppliers, lenders, government and local community; each has different objectives.

Sole trader: one owner, unlimited liability, no separate legal personality, taxed on owner's income.

Partnership: two or more owners, unlimited liability unless a limited liability partnership (LLP) is used.

Limited company: separate legal entity, owners have limited liability, ownership divided into shares.

Private limited company (Ltd) cannot offer shares to the public; public limited company (plc) can, subject to minimum share capital rules.

Not-for-profit organisations include charities, mutuals and public sector bodies; surplus is reinvested, not distributed as profit.

Span of control = number of subordinates directly reporting to one manager; a narrow span gives tall structures, a wide span gives flat ones.

Chain of command is the line of authority from top to bottom; delegation passes authority downward while accountability stays with the delegator.

Centralisation keeps decision-making at head office; decentralisation delegates decisions to local or functional units.

Accounting equation: Assets = Capital + Liabilities; it must hold after every transaction.

Double-entry rule: every transaction has equal debits and credits; debit entries increase assets and expenses, credit entries increase liabilities, capital and income.

Books of prime entry: sales day book, purchases day book, cash book, petty cash book, sales returns day book, purchases returns day book, general journal.

Trial balance lists debit and credit balances; it proves arithmetic equality, not correctness - errors of principle, omission, commission and compensating errors still balance.

Gross profit = Revenue − Cost of sales; Net profit = Gross profit − Expenses.

Working capital = Current assets − Current liabilities; it measures short-term liquidity.

Financial accounting reports to external users under regulation; management accounting reports internally for planning and control, with no prescribed format.

Internal controls include segregation of duties, authorisation limits, bank reconciliations and physical safeguards such as locked cash storage.

Five fundamental ethical principles: integrity, objectivity, professional competence and due care, confidentiality, professional behaviour.

Integrity means being straightforward and honest in all professional and business relationships.

Objectivity requires not allowing bias, conflict of interest or undue influence of others to override professional judgement.

Confidentiality: information acquired through work is not disclosed without authority unless there is a legal or professional right or duty to disclose.

Threats to compliance include self-interest, self-review, advocacy, familiarity and intimidation; safeguards must be applied or the engagement declined.

Regulatory bodies for UK accountancy include the FRC (oversight and standards), and professional bodies such as ICAEW, ACCA and AAT that set ethical and CPD requirements.

Companies legislation (Companies Act 2006) requires true and fair financial statements, filing at Companies House and independent audit for qualifying companies.

Money laundering reporting: suspicious activity is reported internally to the nominated officer, who may submit a suspicious activity report to the National Crime Agency.