AAT Level 3 Business Awareness key terms

The accounting principle that a business is treated as separate from its owners, so only transactions affecting the business itself are recorded in its books, not the owners' personal affairs.

An individual who owns and runs a business alone, with no separate legal identity from the business, so they are personally liable for all business debts.

A legal protection meaning shareholders can lose only the money they invested in a company, not their personal assets, if the business fails.

A position where the owner of a business is personally responsible for all its debts, so personal assets may be used to pay creditors if the business cannot.

A company owned by shareholders whose shares are not traded publicly, offering limited liability and a separate legal identity from its owners.

A company whose shares can be offered to the general public and traded on a stock exchange, subject to stricter regulation and disclosure requirements than a private company.

Money raised by a company when it issues shares to investors, who then become part-owners entitled to a share of profits.

A payment made to shareholders out of a company's profits, usually expressed as an amount per share, decided by the directors.

Profits kept in the business rather than paid out to owners, shown within equity and used to fund future growth or absorb losses.

The owner's investment in a business, representing the resources they have put in and any profits left in the business.

The residual interest in a business after all liabilities are deducted from assets; in a company it comprises share capital and retained earnings.

Any person or group with an interest in how a business performs, such as owners, employees, customers, suppliers, lenders, or the local community.

A person or organisation that owns shares in a company, giving them rights to dividends, voting at meetings, and a share of remaining assets.

The idea that a business should consider its impact on society and the environment, going beyond legal minimums in how it treats stakeholders.

Operating a business in a way that meets present needs without harming the ability of future generations to meet theirs, often covering environmental and social impacts.

The factors close to a business that directly affect its operations, such as customers, suppliers, competitors, and employees.

The wider external factors affecting all businesses, often summarised by political, economic, social, technological, legal, and environmental influences.

A sustained rise in the general level of prices over time, which reduces the purchasing power of money and affects costs, prices, and interest rates.

The percentage charged by a lender for borrowing money, or paid on savings, influencing the cost of finance and levels of business investment.

Money borrowed from a bank or other lender, usually repaid with interest over an agreed period, and often secured against business assets.

The money available for day-to-day operations, calculated as current assets minus current liabilities, showing whether a business can meet short-term obligations.

How easily an asset can be turned into cash, or how readily a business can meet its short-term debts as they fall due.

Assets a business expects to use or convert into cash within one year, such as inventory, trade receivables, and cash.

Amounts a business expects to pay within one year, such as trade payables, overdrafts, and short-term loans.

The movement of money into and out of a business over a period, distinct from profit because it records actual receipts and payments.

A forecast of expected cash receipts and payments over a future period, used to plan for surpluses and identify when borrowing may be needed.

A financial plan for a future period, setting out expected income and expenditure or resource use, against which actual performance is later compared.

Comparing budgeted figures with actual results to identify differences, then investigating the causes so corrective action can be taken.

A budget adjusted to reflect the actual level of activity achieved, allowing fair comparison with actual costs when output differs from plan.

A costing method that charges only variable costs to units produced, treating fixed costs as period costs written off against contribution.

A costing method that includes both variable and a share of fixed production costs in the cost of each unit produced.

Sales revenue minus variable costs, representing the amount available to cover fixed costs and then generate profit.

The level of sales at which total revenue equals total costs, so the business makes neither profit nor loss.

The amount by which actual or planned sales exceed the break-even level, showing how far sales can fall before a loss is made.

Indirect costs of running a business that cannot be traced to a single unit of output, such as rent, insurance, and administration salaries.

A cost that stays the same in total regardless of how much a business produces or sells, at least within a relevant range of activity.

A cost that changes in total in direct proportion to the level of activity, such as raw materials or sales commission.

A system recording every transaction twice, as an equal debit and credit, so that the accounting equation always stays in balance.

A list of all ledger balances at a point in time, used to check that total debits equal total credits before financial statements are prepared.

A temporary account used to hold the difference when a trial balance does not balance, pending investigation and correction of the error.

An expense that has been incurred during a period but not yet invoiced or paid, recorded so profit reflects the true cost for that period.

A payment made in advance for goods or services not yet received, shown as an asset until the benefit is used up.

The accounting rule that expenses should be recorded in the same period as the revenue they helped to generate.

The systematic allocation of the cost of a non-current asset over its useful life, reflecting the benefit consumed each period.

An asset a business intends to keep and use for more than one year, such as machinery, vehicles, or buildings.

A report at a specific date showing a business's assets, liabilities, and equity, sometimes called the balance sheet.

A report for a period showing income earned and expenses incurred, arriving at the profit or loss made.

Revenue minus the cost of sales, showing the profit made from trading before other operating expenses are deducted.

The final profit after all expenses, including operating costs, interest, and tax, have been deducted from revenue.

Moral principles guiding professional behaviour, such as honesty, integrity, objectivity, and confidentiality, which underpin trustworthy financial reporting and advice.

The professional duty not to disclose information learned through work without proper authority, except where there is a legal or ethical obligation to do so.

Being straightforward, honest, and truthful in all professional and business relationships, avoiding misleading statements or omissions.

An attitude of questioning information and evidence rather than accepting it at face value, alert to possible error or misstatement.

The threshold at which an omission or misstatement could influence the decisions of users of financial information, meaning it must be corrected or disclosed.

An internal control where different people handle different stages of a transaction, reducing the risk of error or fraud going unnoticed.

The systems, policies, and procedures a business puts in place to safeguard its assets, ensure accurate records, and prevent fraud or error.