AAT Level 4 DAIF flashcards
AAT Level 4 DAIF · 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.
- Absorption costing
- A costing method that assigns all production overheads to units using a predetermined absorption rate based on a measure such as labour hours or machine hours.
- Overhead absorption rate
- Budgeted total overhead divided by budgeted total activity in the chosen base, used to charge overhead into product costs during the period.
- Under-absorption
- The amount by which overhead absorbed into production is less than the actual overhead incurred, arising when actual activity or spending differs from budget.
- High-low method
- A technique separating fixed and variable cost elements by comparing total costs at the highest and lowest activity levels and dividing the difference by the activity change.
- Contribution per unit
- Selling price per unit minus 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 total fixed costs, giving neither profit nor loss, calculated as 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 percentage, indicating how far sales can fall before a loss arises.
- Limiting factor
- A scarce resource that restricts output. Ranking products by contribution per unit of the limiting factor maximises total contribution.
- Relevant cost
- A future, incremental cash flow that differs between alternatives. Sunk costs and committed costs are excluded from decision making.
- Operating gearing
- The proportion of fixed costs within total cost. High operating gearing makes profit more sensitive to changes in sales volume.
- Gross profit
- Revenue less cost of sales. It shows profit from trading before operating expenses such as administration, selling and distribution costs are deducted.
- Return on capital employed
- Operating profit divided by capital employed, usually total assets less current liabilities, expressed as a percentage measuring profitability of funds invested.
- Current ratio
- Current assets divided by current liabilities. It indicates whether short-term assets are sufficient to settle short-term obligations as they fall due.
- Quick ratio
- Current assets excluding inventory, divided by current liabilities. Inventory is removed because it may not convert to cash quickly.
- Inventory turnover period
- Average inventory divided by cost of sales, multiplied by 365. It shows the average number of days inventory is held before being sold.
- Gearing ratio
- Debt divided by debt plus equity, or debt divided by equity. It measures reliance on borrowings and the level of financial risk.
- Non-controlling interest
- The share of a subsidiary's net assets and profit owned by shareholders outside the group, presented separately in consolidated financial statements.
- Goodwill on consolidation
- Consideration transferred plus non-controlling interest plus prior holdings, less fair value of net assets acquired. It is recognised as an intangible asset.
- Statement of cash flows
- A statement classifying cash movements as operating, investing or financing activities, reconciling opening and closing cash under IAS 7.
- Segregation of duties
- Dividing tasks so that no single person authorises, records and has custody of the same asset, reducing the risk of error and fraud.
- Bank reconciliation
- A check comparing the adjusted cash book balance with the bank statement, adjusting for unpresented cheques, uncredited deposits and bank errors.
- Suspense account
- A temporary account that holds the difference when a trial balance does not agree. It must be cleared before financial statements are finalised.
- Error of principle
- A bookkeeping error that breaks an accounting concept, such as recording capital expenditure as revenue expenditure, though the trial balance still balances.
- Purchase ledger control account
- A nominal ledger account summarising total amounts owed to suppliers, reconciled against the sum of individual supplier balances.
- Internal audit
- An independent appraisal function that evaluates the design and effectiveness of internal controls and reports to those charged with governance.
- Fraud triangle
- A model describing three conditions linked to fraud: an incentive or pressure, an opportunity created by weak controls, and rationalisation by the individual.
- Personal allowance
- The amount of income an individual may receive free of UK income tax, reduced by one pound for every two pounds of income above the limit.
- Capital gains tax
- A tax on gains from disposing of chargeable assets. The chargeable gain is consideration less allowable costs, with an annual exempt amount deducted.
- Capital allowances
- Tax deductions replacing accounting depreciation, including the annual investment allowance and writing-down allowances on pools of qualifying expenditure.
- Corporation tax
- A tax charged on the taxable total profits of companies, comprising trading profits, non-trading income and chargeable gains after allowable reliefs.
- VAT payable
- Output tax charged on sales less input tax suffered on purchases. The net amount is paid to, or reclaimed from, the tax authority.
- Trading loss relief
- The set of options allowing a trading loss to be carried back, carried forward or offset against total income, each subject to specific conditions.