AAT Level 4 DAIF key terms

A method of costing that assigns both variable and fixed production overheads to units produced, usually using a predetermined overhead absorption rate based on labour hours, machine hours or units.

A costing approach in which only variable production costs are treated as product costs, with fixed costs written off in full against contribution in the period incurred.

Sales revenue minus all variable costs. It measures the amount each unit or product line generates towards covering fixed costs and then producing profit.

A predetermined rate used to charge fixed production overhead into product costs, calculated by dividing budgeted overheads by budgeted activity such as labour hours or machine hours.

The difference between overhead actually incurred and overhead absorbed into production. Under-absorption means too little was charged to products; over-absorption means too much was charged.

The level of sales at which total revenue equals total cost, giving neither profit nor loss. It can be expressed in units or in revenue.

The amount by which actual or budgeted sales exceed break-even sales, expressed in units, revenue or as a percentage of budgeted activity. It indicates how far sales can fall before a loss arises.

A technique examining how changes in sales volume, selling price, variable cost and fixed cost affect profit. It commonly uses break-even charts and contribution calculations.

A resource in short supply that restricts the level of output or sales achievable, such as machine hours, skilled labour or raw materials. Scarce resources are ranked by contribution earned per unit of the factor.

The contribution generated by one unit of a scarce resource, found by dividing contribution per unit of product by the quantity of the limiting factor it consumes. Used to rank products when resources are restricted.

The selection of costs and revenues for a decision based only on future cash flows that differ between the alternatives. Past costs and apportioned fixed costs are normally excluded.

The benefit forgone by choosing one course of action rather than the next best alternative. It is relevant to decision-making even though it does not appear in the accounting records.

A cost already incurred that cannot be changed by any future decision. It is excluded from relevant costing because it is not a future differential cash flow.

A system that sets predetermined costs and revenues for products and compares them with actual results to identify and investigate variances.

The process of comparing budgeted or standard figures with actual figures, calculating the difference and identifying whether it is favourable or adverse so that causes can be investigated.

A budget that is adjusted to the actual level of activity achieved, so that valid comparisons can be made between budgeted and actual costs at the same volume.

A difference between actual and budgeted figures that increases profit compared with the budget, such as actual cost being lower than standard or actual revenue being higher.

A difference between actual and budgeted figures that reduces profit compared with the budget, such as actual cost exceeding standard or actual revenue falling short of budget.

A statement showing the assets, liabilities and equity of an entity at a specific date, based on the accounting equation that assets equal liabilities plus equity.

A statement summarising the income and expenses of an entity for an accounting period to show the profit or loss generated during that period.

An expense that has been incurred in the period but not yet invoiced or paid, recognised in the financial statements so that costs are matched to the period they relate to.

An amount paid in one accounting period that relates to a later period. It is treated as an asset until the benefit is consumed and the expense is recognised.

The accounting concept requiring expenses to be recognised in the same period as the revenues to which they relate, rather than when cash is paid or received.

The systematic allocation of the depreciable amount of a non-current asset over its useful life, reflecting consumption of the asset's economic benefits.

The amount at which an asset or liability is recognised in the statement of financial position, being cost less accumulated depreciation and accumulated impairment losses for a non-current asset.

A reduction in the recoverable amount of an asset below its carrying amount, requiring the carrying amount to be written down and a loss recognised in profit or loss.

A list of all ledger account balances at a given date, used to check that total debits equal total credits before financial statements are prepared.

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

The book of prime entry used to record transactions and adjustments that do not pass through another book of prime entry, showing debits and credits with a narrative explanation.

The policies, procedures and systems designed to safeguard assets, ensure accurate and reliable records and support compliance with laws and regulations.

An internal control principle that divides responsibilities so that no single person controls all stages of a transaction, reducing the risk of error or fraud going undetected.

The design of procedures so that the work of one person is independently verified by another as part of the normal routine, providing automatic cross-checking of transactions.

An independent appraisal function within an organisation that evaluates the effectiveness of internal controls, risk management and governance, reporting to those charged with oversight.

A control procedure comparing the bank statement with the cash book, identifying and explaining differences such as unpresented cheques and unrecorded bank charges.

Intentional deception by an individual or group involving the misuse of assets or manipulation of records for personal gain, often concealed through collusion or override of controls.

A tax deduction that allows businesses to claim relief on the cost of qualifying capital assets against taxable profits, instead of accounting depreciation.

The profit of a business adjusted for tax purposes, starting from accounting profit and adding back disallowable expenses and deducting allowable expenses and capital allowances.

The amount of income an individual can receive free of income tax in a tax year, subject to reduction for high income levels under tapering rules.

A tax charged on individuals' income, including employment, trading and savings income, calculated by applying banded rates to taxable income after allowances and reliefs.

A tax charged on the gain arising when an individual or business disposes of an asset for more than its allowable cost, after deducting the annual exempt amount.