GCE O/L Business & Accounting Studies cheat sheet

Business: an organisation that combines inputs (land, labour, capital, enterprise) to produce goods or services for sale, aiming to satisfy needs and wants.

Needs are essentials for survival (food, shelter, clothing); wants are non-essential desires that are unlimited and vary by person, income and culture.

Scarcity: unlimited wants against limited resources; it forces choice, and every choice carries an opportunity cost - the value of the next best alternative forgone.

Production types: primary (extracting raw materials, e.g. farming, mining), secondary (manufacturing and construction), tertiary (services such as retail, banking, transport).

Sectors by ownership: private sector (owned by individuals for profit), public sector (owned by government for service), and mixed economies combining both.

Stakeholders and their interests: owners want profit, employees want pay and security, customers want quality and fair price, government wants tax and compliance, community wants environmental care.

Business environment forces: internal (controllable - resources, staff, culture) versus external (competition, technology, law, economy, social trends, environment).

A business must satisfy consumer needs profitably and legally; ignoring social and environmental responsibilities raises costs through fines, boycotts and lost reputation.

Value chain logic: inputs → transformation process → outputs → customer; adding value means the selling price exceeds the total cost of inputs and transformation.

Entrepreneur: a person who spots an opportunity, takes the risk of organising resources and bears the uncertainty of profit or loss.

Key entrepreneurial traits: initiative, risk-bearing, innovation, self-confidence, persistence, opportunity awareness; skills include planning, negotiation and basic financial literacy.

Roles of entrepreneurs in an economy: create employment, introduce new products and methods, raise output and tax revenue, and reduce regional imbalance.

Idea sources: personal experience and skills, observation of unmet needs, complaints, market surveys, hobbies, and copying or improving existing products.

A business idea becomes viable when three tests pass: there is real demand, the entrepreneur has or can obtain the resources, and revenue can exceed cost at a price customers accept.

SWOT analysis: internal Strengths and Weaknesses, external Opportunities and Threats; used to judge whether an idea can be turned into a competitive plan.

A business plan states the idea, market and customers, competitors, marketing mix, operations, staffing, finance required and profit projections.

SMART objectives: Specific, Measurable, Achievable, Relevant, Time-bound; they convert the vision into targets that can be checked later.

Risk differs from uncertainty: risk is measurable and can be insured or managed; uncertainty cannot be quantified, so entrepreneurs need contingency reserves.

Sole proprietorship: one owner, unlimited liability, no separate legal personality, easy and cheap to form, owner keeps all profit and bears all loss.

Partnership: 2–20 partners by general rule; unlimited liability unless a limited partner; governed by a partnership agreement covering capital, profit sharing and exit.

Private limited company: separate legal personality, limited liability, shares not offered to the public, minimum two members; must file annual accounts and statutory returns.

Public limited company: can offer shares to the public, needs a stated minimum capital, must publish accounts, and is subject to stricter regulation and disclosure.

Cooperative society: owned and controlled by members on one-member-one-vote, profit distributed as dividend or patronage refund, service rather than profit motive.

State/public corporation: owned by government, established by statute, aims at public service, funded by government and accountable to the legislature.

Limited liability confines an owner's loss to the capital contributed; unlimited liability exposes personal assets to business debts.

Choice criteria: capital needed, liability, control, continuity, legal formalities, taxation and privacy - no single form is best on every criterion.

Legal personality means the entity can own property, contract, sue and be sued in its own name, distinct from its owners.

Management functions: planning (setting objectives), organising (allocating resources), leading/directing (motivating and instructing) and controlling (comparing results with plans).

Levels of management: top (policy and strategy), middle (departmental plans), supervisory/first-line (day-to-day supervision of operatives).

Span of control: the number of subordinates reporting to one manager; a wide span suits simple, routine work, a narrow span suits complex work needing close support.

Marketing mix (4Ps): Product, Price, Place, Promotion; the elements must be consistent with each other and with the target segment.

Market segmentation divides buyers by income, age, gender, location or lifestyle so the mix can be aimed at a chosen group.

Production methods: job production (one-off, customised), batch production (groups of identical units), mass/flow production (continuous, high volume, low unit cost).

Human resource tasks: recruitment, selection, induction, training, appraisal, reward and discipline; motivation rises with fair pay, recognition and clear goals.

Accounting and finance function records transactions, controls cash and stock, prepares statements and supplies information for decisions.

A functional organisation groups staff by specialism (marketing, production, finance); a divisional structure groups them by product, region or customer.

Accounting is the process of identifying, measuring, recording, classifying, summarising and communicating economic information to users.

Accounting equation: Assets = Capital (Owner's Equity) + Liabilities.

Expanded equation: Assets = Capital + Liabilities + (Income − Expenses); profit increases capital, drawings and losses reduce it.

Dual aspect (double entry): every transaction has two effects of equal value, so the equation always balances.

Asset: a resource controlled by the business expected to bring future benefit; liability: a present obligation to pay; capital: the owner's claim on net assets.

Capital = Assets − Liabilities (net assets); a profit adds to capital, a loss and drawings reduce it.

Users and their needs: owners (profitability), managers (control), lenders (repayment ability), suppliers (creditworthiness), government (tax), employees (security).

Accounting concepts: going concern, accrual, consistency, prudence, business entity and money measurement; they govern how figures are recognised.

Business entity concept: the owner's private transactions and personal assets are kept separate from the business records.

Books of prime entry: sales journal (credit sales), purchases journal (credit purchases), sales returns journal, purchases returns journal, cash book and general journal.

Source documents: invoice (credit sale/purchase), credit note (returns and allowances), debit note, receipt, voucher, bank statement and petty cash voucher.

Ledger rule: debit the receiver, credit the giver; assets and expenses increase on the debit side, liabilities, capital and income increase on the credit side.

T-account layout: left side debit, right side credit; balance c/d closes an account and balance b/d opens the next period.

Sales journal totals are posted periodically to the debit of trade receivables; individual entries go to each customer's personal account.

Cash book is both a book of prime entry and a ledger account; a two-column cash book records cash and bank with contra entries for cash banked.

Petty cash imprest system: a fixed float is restored periodically by the amount actually spent; a petty cash book analyses small payments by category.

Trial balance extracts debit and credit balances; it proves arithmetic equality only - it cannot reveal omitted, duplicated or wrongly analysed entries.

Errors not affecting trial balance: omission, commission, principle, original entry, reversal, compensating errors and complete omission of a posting.

Trading account: Sales − Cost of Sales = Gross Profit; Cost of Sales = Opening stock + Purchases + Carriage inwards − Closing stock.

Profit and loss account: Gross Profit + Other Income − Expenses = Net Profit; expenses include depreciation, wages, rent and general overheads.

Statement of financial position: Assets (non-current + current) = Capital + Liabilities (non-current + current); it shows position at a date, not performance over a period.

Capital in the statement of financial position = Opening capital + Net profit − Drawings (plus any additional capital introduced).

Closing stock appears as a credit in the trading account and a current asset in the statement of financial position; it is valued at the lower of cost and net realisable value.

Depreciation allocates the cost of a non-current asset over its useful life; straight line = (Cost − Residual value) ÷ Useful life.

Accruals are expenses incurred but not yet paid (added to expense); prepayments are paid in advance (deducted from expense).

Current ratio = Current assets ÷ Current liabilities; a ratio below 1 signals possible difficulty in meeting short-term debts.

Net profit percentage = (Net profit ÷ Sales) × 100; it measures how much of each sales unit remains as profit after all expenses.

Profitability: gross profit % = (Gross profit ÷ Sales) × 100; net profit % = (Net profit ÷ Sales) × 100; return on capital employed = (Net profit ÷ Capital employed) × 100.

Liquidity: current ratio = Current assets ÷ Current liabilities; quick (acid test) ratio = (Current assets − Stock) ÷ Current liabilities.

Efficiency: stock turnover = Cost of sales ÷ Average stock; debtors' collection period = (Trade receivables ÷ Credit sales) × 365 days.

Gearing = (Long-term debt ÷ Capital employed) × 100; high gearing means greater fixed interest burden and greater financial risk.

Break-even output (units) = Fixed costs ÷ Contribution per unit, where contribution per unit = Selling price − Variable cost per unit.

Margin of safety = Actual (or budgeted) sales − Break-even sales; it shows how far sales can fall before a loss arises.

A ratio is meaningful only when compared with a prior year, a budget, an industry average or a competitor - never in isolation.

Limitations of ratio analysis: historic data, differing accounting policies, inflation, and non-financial factors such as staff morale and brand strength.

Decision rule: accept a project or order only if incremental revenue exceeds incremental cost; ignore sunk costs, which cannot be changed by the decision.

Sources of finance: internal (retained profit, sale of assets, owner's capital) versus external (loans, shares, debentures, leasing, trade credit, hire purchase).

Short-term finance (under one year): bank overdraft, trade credit, factoring of debts; long-term finance: term loans, share capital, debentures, retained earnings.

Debt finance carries fixed interest and must be repaid; equity finance dilutes ownership but requires no fixed repayment.

Working capital = Current assets − Current liabilities; it funds day-to-day operations and must be sufficient for stock, debtors and cash needs.

Cash flow forecast records expected receipts and payments by period; a business can be profitable yet fail if cash timing is poor.

Cash budget: Opening balance + Total receipts − Total payments = Closing balance; a negative closing balance requires borrowing or delayed payment.

Overdraft is repayable on demand and suits seasonal gaps; a term loan suits asset purchase and is repaid over an agreed schedule with interest.

Effective money management: control stock levels, collect debts promptly, hold a cash buffer, and match the repayment period of finance to the life of the asset financed.

Leasing gives use of an asset without outright purchase, conserving cash but costing more overall than buying; hire purchase gives eventual ownership.