AAT Level 4 INAC flashcards
AAT Level 4 INAC · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Segregation of duties
- A control that divides authorisation, custody of assets, record keeping and reconciliation among different people so that no single individual can both commit and conceal an error or fraud.
- Imprest petty cash system
- A float of fixed value is topped up after each period by the amount spent. Reimbursement equals the float less cash remaining, and total payments always reconcile to the float.
- Error of principle
- A transaction recorded in the wrong class of account, such as capital expenditure posted to repairs. Debits still equal credits, so the trial balance fails to reveal it.
- Error of omission
- A transaction is entirely left out of the accounting records, so no entry is made at all. Because both sides are missing, the trial balance still balances.
- Unpresented cheque
- A cheque issued and entered in the cash book but not yet cleared through the bank. It is deducted from the bank statement balance when preparing a reconciliation.
- Fraud triangle
- A model explaining fraud by three conditions: opportunity, pressure or incentive, and rationalisation. Controls chiefly reduce opportunity through segregation and authorisation.
- Three lines of defence
- Operational management owns risk as the first line, risk and compliance functions provide oversight as the second, and internal audit gives independent assurance as the third.
- Audit trail
- A documented path linking each source document to its ledger entry and back, enabling transactions to be traced and verified during an audit or investigation.
- Contribution per unit
- Selling price per unit less variable cost per unit. It measures how much each sale contributes towards covering fixed costs and then generating profit.
- Break-even point
- The activity level at which total contribution equals fixed costs and profit is nil. In units it is fixed costs divided by contribution per unit.
- Margin of safety
- The excess of budgeted or actual sales over break-even sales, expressed in units, revenue or as a percentage of budgeted sales.
- Target profit volume
- The number of units required to achieve a specified profit, calculated as fixed costs plus target profit, divided by contribution per unit.
- Overhead absorption rate
- Total budgeted production overhead divided by total budgeted activity such as labour hours or machine hours, used to attach overhead to units produced.
- Over-absorption
- Occurs when overhead absorbed into production exceeds overhead actually incurred, typically because activity was higher than budgeted. It is written back as a credit.
- High-low method
- Splits a mixed cost by comparing the highest and lowest activity levels: variable cost per unit equals the change in cost divided by the change in activity.
- Flexible budget
- A budget recast to reflect the actual level of activity achieved, allowing expenditure variances to be assessed separately from sales volume effects.
- Relevant cost
- A future, incremental cash flow that differs between alternatives. Sunk costs, committed costs and apportioned fixed overheads are excluded from the decision.
- Limiting factor
- A resource in short supply that restricts output. Profit is maximised by ranking products by contribution per unit of the scarce resource.
- Goodwill on consolidation
- Consideration transferred plus non-controlling interest plus prior holding value, less fair value of net assets acquired. It is recognised only on acquisition.
- Non-controlling interest
- The share of a subsidiary's net assets and profits attributable to shareholders other than the parent, presented separately within group equity.
- Current ratio
- Current assets divided by current liabilities. It indicates short-term liquidity and whether working capital is sufficient to meet obligations falling due.
- Quick ratio
- Current assets less inventory, divided by current liabilities. It tests liquidity excluding inventory, which may be slow or difficult to convert into cash.
- Gearing ratio
- Debt divided by debt plus equity, or prior-charge capital divided by total capital employed. Higher gearing means greater financial risk and fixed interest obligations.
- Return on capital employed
- Operating profit divided by capital employed, where capital employed is total assets less current liabilities. It measures the efficiency of capital utilisation.
- Inventory turnover days
- Average inventory divided by cost of sales, multiplied by 365. It shows the average number of days inventory is held before being sold.
- Receivables collection days
- Trade receivables divided by credit sales, multiplied by 365. It estimates the average time taken to collect cash from credit customers.
- IAS 7 cash flow categories
- Cash flows are classified as operating, investing or financing activities, with the total reconciled to the movement in cash and cash equivalents.
- VAT output and input tax
- Output tax charged on sales less input tax suffered on purchases equals the amount payable to HMRC, or repayable if input tax exceeds output tax.
- VAT registration threshold
- A business must register for VAT once its taxable turnover exceeds the statutory threshold within any rolling twelve-month period, or on expected exceedance.
- Zero-rated versus exempt
- Zero-rated supplies are taxable at 0% and permit input tax recovery. Exempt supplies are outside the scope of VAT and generally block related input tax.
- Annual investment allowance
- A 100% capital allowance on qualifying plant and machinery up to a statutory annual limit, giving immediate relief instead of writing-down allowances.
- Writing-down allowance
- A reducing-balance allowance applied to the tax pool of plant and machinery after any annual investment allowance, reflecting the unrelieved capital cost.