AAT Level 4 AMAC key terms

A summary at a single date of what a company owns (assets), what it owes (liabilities) and the owners' residual interest, laid out as assets less liabilities equals equity.

A summary covering a period showing income earned less expenses incurred, arriving at profit or loss for the period before it is transferred to retained earnings.

A report of cash received and paid during a period, split into operating, investing and financing activities, reconciling opening and closing cash balances.

The owners' claim on the company after all liabilities are deducted, made up of share capital, share premium, reserves and retained earnings.

Cumulative profits kept in the business rather than paid out as dividends, shown within equity and increased by profit and reduced by dividends declared.

The amount paid to acquire a business above the fair value of its identifiable net assets, reflecting reputation, customer base and similar unidentifiable benefits.

A reduction in the carrying amount of an asset when its recoverable amount falls below the value recorded in the accounts, charged as an expense.

The value at which an asset or liability is recorded in the statement of financial position, being cost less accumulated depreciation, amortisation or impairment.

The systematic allocation of the depreciable cost of a non-current asset over its useful life, reflecting consumption of economic benefit rather than market value change.

The principle that income and expenses are recognised in the period they are earned or incurred, not when cash changes hands, so matching income with related costs.

An amount paid in one period for goods or services to be consumed in a later period, carried forward as an asset until the benefit is used.

A cost incurred in the period but not yet invoiced or paid, recognised as an expense with a matching liability in the statement of financial position.

A quantified plan expressed in money or units for a future period, used to coordinate activity, allocate resources and provide a benchmark for later control.

A budget restated to the actual level of activity achieved, so that costs are compared with what they should have been at that volume.

The comparison of actual results with budgeted or standard figures, identifying differences as favourable or adverse and investigating their causes.

A budgeting method where every activity and cost must be justified from a nil base each period, rather than starting from last period's figures.

A budgeting approach that takes the previous period's budget or actual results and adjusts them for expected changes such as inflation or known growth.

A system that sets predetermined costs and quantities for products or operations, then compares actual performance against those standards to control costs.

A planned unit cost built from expected quantities and prices of materials, labour and overhead, used as the benchmark in a standard costing system.

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

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

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

A costing method that charges only variable production costs to units, treating fixed costs as period costs, so profit moves with sales volume.

A costing method that assigns both variable and a share of fixed production overhead to units, so some fixed cost is carried in inventory.

A predetermined rate used to spread production overhead across units, calculated by dividing budgeted overhead by a chosen basis such as labour hours.

A future cash cost that differs between the options being compared, and so should influence a decision; past costs and unchanged costs are excluded.

The benefit lost by choosing one course of action instead of the next best alternative, measured by the contribution forgone.

Money already spent that cannot be recovered whatever decision is now taken, and which is therefore irrelevant to future choices.

The policies, procedures and systems a business uses to safeguard assets, keep records accurate and reliable, and prevent and detect error and fraud.

Splitting tasks so that no single person both authorises a transaction and records or holds the related asset, reducing the risk of undetected fraud.

A check that agrees the business's cash book balance with the bank statement, explaining differences such as unpresented cheques and unrecorded receipts.

The excess of current assets over current liabilities, representing the funds tied up in day-to-day operations such as inventory and receivables.

A ratio showing the average number of days customers take to pay, calculated as trade receivables divided by credit sales multiplied by 365.

The maximum amount of credit a supplier will allow a customer to owe at any one time, set from an assessment of the customer's ability and willingness to pay.

A statistical technique that grades applicants on factors such as payment history and financial strength to predict the likelihood of late or non-payment.

A report grouping unpaid customer balances by how long they have been outstanding, helping identify slow payers and debts needing chasing.

A distribution of profit to shareholders, declared by the directors and paid from distributable reserves, reducing retained earnings in equity.

A tax charged on an individual's taxable income for a tax year, calculated by applying banded rates to income after allowable reliefs and the personal allowance.

The amount of income an individual can receive in a tax year before any income tax is charged, reduced for those with very high income.

A tax on the profit made when disposing of an asset for more than its cost, after deducting the annual exempt amount and available reliefs.

A tax on the taxable profits of a limited company, calculated by adjusting accounting profit for disallowable expenses and capital allowances.

Tax relief given instead of depreciation for expenditure on qualifying assets, deducted from taxable profits over time under the relevant allowance rules.

The taxable profit of a business for a period, being accounting profit adjusted for items not allowed or not yet taxed, such as depreciation and capital allowances.

The auditor's formal conclusion in the report on whether the financial statements give a true and fair view, which may be unmodified or modified.

The information gathered by the auditor through inspection, observation, enquiry and confirmation to support the conclusions on which the opinion is based.

The threshold above which a misstatement or omission could reasonably influence the decisions of users of the financial statements, guiding the extent of audit work.