AAT Level 3 Business Awareness cheat sheet

Micro environment: internal factors (employees, owners, resources) and immediate external (customers, suppliers, competitors, local community).

Macro environment: PESTLE analysis - Political, Economic, Social, Technological, Legal, Environmental factors affecting all organisations.

Stakeholders: internal (employees, managers, owners) vs external (customers, suppliers, government, pressure groups); each has different objectives and influence.

Business structures: sole trader (unlimited liability), partnership (unlimited liability, shared profits), limited company (separate legal entity, limited liability).

Limited liability: shareholders' liability capped at amount unpaid on shares; private limited (Ltd) vs public limited (plc) - plc can offer shares to public.

Not-for-profit organisations: aim to fulfil a social purpose; any surplus is reinvested, not distributed to members.

Corporate governance: systems by which companies are directed and controlled; board of directors accountable to shareholders.

CSR (Corporate Social Responsibility): business responsibility to stakeholders beyond legal obligations; can enhance reputation but may increase costs.

Accounting equation: Assets = Capital + Liabilities (or Assets – Liabilities = Capital).

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

Trial balance: list of all ledger balances; total debits must equal total credits; errors that do not affect trial balance include omission, commission, principle, original entry, reversal and compensating errors.

Accruals (matching) concept: income and expenses recognised when earned/incurred, not when cash changes hands; prepayments are expenses paid in advance, accruals are expenses incurred but unpaid.

Prudence concept: do not overstate assets or income; provide for foreseeable losses but do not anticipate profits.

Going concern: assume entity will continue in operational existence for foreseeable future; assets valued on that basis.

Depreciation: systematic allocation of cost of non-current asset over useful life; straight-line = (cost – residual value) / useful life; reducing balance = percentage of carrying amount.

Bank reconciliation: adjust cash book for items not yet recorded (bank charges, standing orders, dishonoured cheques); adjust bank statement for unpresented cheques and outstanding lodgements.

Cost classification: direct costs (traceable to product) vs indirect costs (overheads); fixed, variable, semi-variable and stepped costs by behaviour.

High-low method: variable cost per unit = (cost at high activity – cost at low activity) / (high activity – low activity); fixed cost = total cost – (variable cost per unit × activity).

Break-even point (units) = Fixed costs / Contribution per unit; contribution per unit = selling price – variable cost per unit.

Margin of safety = (Budgeted sales – Break-even sales) / Budgeted sales × 100% (or in units: budgeted sales units – break-even units).

Absorption costing: overheads allocated and apportioned to cost centres, then absorbed into product costs using predetermined absorption rate (e.g., per labour hour).

Marginal costing: only variable costs included in product cost; fixed costs treated as period costs; profit = contribution – fixed costs.

Budgeting: purpose includes planning, coordination, communication, motivation and control; incremental, zero-based and rolling budgets are common approaches.

Variance analysis: adverse (A) variance reduces profit compared with budget; favourable (F) increases profit; price and usage variances for materials and labour.

Ethical principles (IESBA/ACCA): integrity, objectivity, professional competence and due care, confidentiality, professional behaviour.

Confidentiality: do not disclose information acquired through professional relationships without proper authority unless legal/professional right or duty to disclose.

Objectivity: do not compromise professional judgement due to bias, conflict of interest or undue influence of others.

Integrity: be straightforward and honest in all professional and business relationships.

Professional competence and due care: maintain professional knowledge and skill at required level; act diligently in accordance with applicable standards.

Professional behaviour: comply with relevant laws and regulations; avoid conduct that discredits the profession.

Communication: use appropriate format, tone and language for audience; active listening and clear written communication are key.

Time management: prioritise tasks by urgency and importance; use planning tools to meet deadlines and manage workload.