AAT Level 4 INAC key terms

The policies, procedures and practices a business uses to safeguard its assets, keep records accurate and reliable, and ensure it complies with laws and regulations.

Splitting tasks so that no single person both carries out a transaction and checks or records it, which reduces the risk of error or fraud going unnoticed.

A cap on the value or type of transaction an employee may approve without referring it to a more senior manager, forming part of the approval controls in a system.

A summary account in the general ledger that totals the individual balances held in a subsidiary ledger, allowing the two records to be reconciled and disagreements investigated.

A temporary ledger account used to hold an entry whose correct double entry is not yet known, such as when a trial balance fails to agree.

The process of comparing two sets of records, such as a bank statement and cash book, and explaining any differences so that both are confirmed as accurate.

Sales revenue less variable costs. It measures how much each unit or product line gives towards covering fixed costs and then generating profit.

The level of sales, in units or revenue, at which total contribution exactly equals fixed costs so the business makes neither a profit nor a loss.

The amount by which actual or budgeted sales exceed the break-even level, showing how far sales can fall before the business starts making a loss.

A future cash cost that differs between the options being compared. Costs that are sunk, committed or identical under every option are excluded from the decision.

The benefit given up by choosing one course of action rather than the next best alternative, often a relevant cost when capacity is limited.

Money already spent that cannot be recovered by any future decision, so it is ignored when comparing alternatives.

The scarce resource, such as machine hours, skilled labour or materials, that restricts output and so determines how products should be ranked and prioritised.

A system that sets expected costs and quantities for products in advance, then compares actual results against those standards to highlight and explain variances.

The difference between a planned or standard figure and the actual figure achieved. It is labelled favourable or adverse according to its effect on profit.

A budget adjusted to the actual level of activity achieved, so that performance can be compared fairly against what costs should have been at that volume.

A budgeting approach where each activity's spending must be justified from a nil base every period, rather than rolling forward last year's figures with adjustments.

A budgeting method that starts from the previous period's figures and adds or subtracts a percentage or agreed amount to arrive at the new budget.

A financial plan for a defined future period, expressing expected income, expenditure and resource use, against which actual performance is later monitored.

A report showing what a business owns, what it owes and the owners' interest at a single date, presented as assets, liabilities and equity.

Current assets divided by current liabilities. It indicates whether short-term resources are sufficient to settle obligations falling due within a year.

Current assets excluding inventory, divided by current liabilities. It tests short-term liquidity without relying on selling stock.

The proportion of a company's capital that is financed by debt rather than equity, often expressed as debt divided by debt plus equity. High gearing means greater financial risk.

Operating profit divided by finance costs. It shows how many times profits could pay the interest charge, indicating the safety margin for lenders.

Operating profit expressed as a percentage of the capital invested in the business, measuring how efficiently long-term funds are being used to generate profit.

Revenue divided by capital employed. It measures how much sales revenue is generated for each unit of capital invested in the business.

The period between paying for goods and receiving cash from their sale, calculated from inventory days plus receivable days less payable days.

The amount paid for a business above the fair value of its identifiable net assets, reflecting reputation, customer base and other unrecorded advantages.

An expense recognised in the period it was incurred even though it has not yet been invoiced or paid, matching costs to the period they relate to.

An amount paid in one period for goods or services that relate to a later period, so it is carried forward as an asset until consumed.

A tax deduction that lets a business spread or claim the cost of qualifying capital assets against taxable profits instead of using accounting depreciation.

An annual tax deduction calculated as a percentage of the reducing balance of a pool of qualifying assets, continuing each year until the asset is sold.

A taxable amount that arises when the disposal proceeds of an asset exceed its tax written-down value, bringing the excess into the tax computation.

The profit figure adjusted for tax purposes by adding back disallowable expenses and deducting allowable items and capital allowances, on which tax is charged.

An optional fixed annual deduction from trading income available to small businesses instead of claiming actual allowable expenses, simplifying their tax return.

An indirect tax charged on the supply of most goods and services, collected by registered businesses from customers and paid over to the tax authority after deducting input tax.

VAT a registered business pays on purchases and expenses, which can normally be reclaimed against the output tax it owes.

VAT a registered business charges its customers on sales, which it collects and then accounts for to the tax authority.

An advance payment of income tax, usually made twice yearly based on the previous year's liability, with any balance settled when the return is filed.