94 terms
Absorption and activity based costing
Absorption costing builds the full cost of a product by sharing all factory overheads across every unit made. Five key t
Absorption and activity based costing
Absorption and activity based costing
Absorption costing builds the full cost of a product by adding direct costs directly to it and sharing indirect costs (o
Absorption and activity based costing
Absorption and activity based costing
Activity based costing (ABC) groups indirect costs by the activity that causes them. It then charges each product based
Absorption and activity based costing
Absorption and activity based costing
Activity based costing (ABC) assigns direct costs straight to a product. It then groups indirect costs into cost pools a
Absorption and activity based costing
Absorption and activity based costing
Once a business knows the total cost of a product, it adds a profit mark-up to set a selling price. Absorption costing a
Absorption and activity based costing
Absorption and activity based costing
Each costing method produces different inventory values and profit figures. Knowing the strengths and weaknesses of each
Absorption and activity based costing
Accounting concepts used in the preparation of accounting records
Accountants follow ten agreed rules called accounting concepts. These concepts keep financial records honest, comparable
Accounting concepts used in the preparation of accounting records
Accounting concepts used in the preparation of accounting records
Accounting concepts are rules that guide how accountants record and report financial information. Each concept applies t
Accounting concepts used in the preparation of accounting records
Accounting for limited companies
Limited companies must produce a set of formal financial statements each year. These statements follow international rul
Accounting for limited companies
Accounting for limited companies
AQA will never ask you to prepare group accounts or a statement of comprehensive income. You only need to know the finan
Accounting for limited companies
Accounting for limited companies
When a non-current asset rises in value, a company records the increase. It credits a revaluation reserve — not profit —
Accounting for limited companies
Accounting for limited companies
A limited company can raise or reorganise its share capital in three ways. Each method affects the statement of financia
Accounting for limited companies
Accounting for limited companies
Limited companies must publish their financial accounts by law. Different groups — such as investors, lenders, and emplo
Accounting for limited companies
Accounting for limited companies
International accounting standards are agreed rules that tell companies worldwide how to prepare their financial stateme
Accounting for limited companies
Accounting for organisations with incomplete records
Some businesses only keep basic financial records. You can still calculate their profit by comparing what the business o
Accounting for organisations with incomplete records
Accounting for organisations with incomplete records
When a business has not kept full accounting records, accountants use specific techniques to reconstruct missing figures
Accounting for organisations with incomplete records
Accounting for organisations with incomplete records
Businesses can keep financial records in different ways. Each system has trade-offs between simplicity, cost, and the ac
Accounting for organisations with incomplete records
An introduction to the role of the accountant in business
An accountant manages a business's financial records, reports, and controls. They ensure the business has accurate money
An introduction to the role of the accountant in business
An introduction to the role of the accountant in business
Accounting splits into two branches. Financial accounting reports a business's past performance to outsiders. Management
An introduction to the role of the accountant in business
An introduction to the role of the accountant in business
Accountants design and manage the systems a business uses to collect and process financial data. These systems produce i
An introduction to the role of the accountant in business
An introduction to the role of the accountant in business
Accountants supervise bookkeepers and ledger clerks. Bookkeepers record day-to-day financial transactions, and ledger cl
An introduction to the role of the accountant in business
Analysis and evaluation of financial information
Financial ratios are calculations that turn raw accounting figures into meaningful measures. They tell you how profitabl
Analysis and evaluation of financial information
Analysis and evaluation of financial information
Businesses use ratios and financial statements to judge how well they are performing. Accountants group these judgements
Analysis and evaluation of financial information
Analysis and evaluation of financial information
Profit and cash are not the same thing. A business can earn high profits but still run out of cash — and some transactio
Analysis and evaluation of financial information
Analysis and evaluation of financial information
Financial statements and ratios only tell part of the story about a business. They miss important factors — like staff q
Analysis and evaluation of financial information
Budgeting
A budget is a detailed financial plan for a future period. Businesses use budgets to set targets, control spending, and
Budgeting
Budgeting
Budgeting helps businesses plan and control their finances, but it also has drawbacks. Two main approaches exist: buildi
Budgeting
Budgeting
Businesses prepare several linked budgets — for sales, production, labour, purchases, and cash — to plan future finances
Budgeting
Budgeting
Businesses compare their budgeted figures against actual results. The difference is called a variance. Managers use vari
Budgeting
Capital investment appraisal
Capital investment appraisal helps a business decide whether a large purchase is worth making. It uses cash flows — the
Capital investment appraisal
Capital investment appraisal
Capital investment appraisal uses specific terms to judge whether a large purchase is worthwhile. These four terms — pay
Capital investment appraisal
Capital investment appraisal
Payback period tells you how many years a project takes to recover its initial cost. Net present value (NPV) adjusts all
Capital investment appraisal
Capital investment appraisal
Both payback and net present value (NPV) help businesses judge whether a large investment is worthwhile. Each method has
Capital investment appraisal
Capital investment appraisal
When a business decides whether to invest in a major project, it weighs up financial results like payback period and NPV
Capital investment appraisal
Interpretation, analysis and communication of accounting information
Accountants use ratios and other measures to judge how well a business is performing. But ratios have real weaknesses, a
Interpretation, analysis and communication of accounting information
Interpretation, analysis and communication of accounting information
Investors use five key ratios to judge whether a company is worth buying into. These ratios measure returns, profitabili
Interpretation, analysis and communication of accounting information
Interpretation, analysis and communication of accounting information
Businesses judge their performance in two ways. They compare their own results year on year, and they compare themselves
Interpretation, analysis and communication of accounting information
Interpretation, analysis and communication of accounting information
Profit and cash are not the same thing. A business can earn high profits but still run out of cash — and some transactio
Interpretation, analysis and communication of accounting information
Interpretation, analysis and communication of accounting information
Different groups of people have different reasons for wanting accounting information. A business must communicate that i
Interpretation, analysis and communication of accounting information
Interpretation, analysis and communication of accounting information
Internal stakeholders work inside a business and use its accounting information for their own purposes. The three main g
Interpretation, analysis and communication of accounting information
Interpretation, analysis and communication of accounting information
External stakeholders are groups outside a business who have an interest in how it performs. Each group wants different
Interpretation, analysis and communication of accounting information
Interpretation, analysis and communication of accounting information
Published accounts are financial reports that companies must make available to the public. Different groups — such as in
Interpretation, analysis and communication of accounting information
Interpretation, analysis and communication of accounting information
Businesses can record financial transactions by hand or using accounting software. Each method has different costs, accu
Interpretation, analysis and communication of accounting information
Limited company accounts
Limited companies produce three financial statements to summarise their performance and financial position. These are th
Limited company accounts
Limited company accounts
The financial statements you prepare for limited companies in this topic are internal documents. Managers use them insid
Limited company accounts
Limited company accounts
A limited company's income statement shows three separate profit figures. Each one deducts a different cost, so they get
Limited company accounts
Limited company accounts
The statement of changes in equity tracks every movement in a company's ownership funds during the year. It records shar
Limited company accounts
Limited company accounts
A statement of financial position groups everything a company owns and owes into five labelled sections. Each section te
Limited company accounts
Limited company accounts
AQA will never test you on preference shares or general reserves. You can ignore both topics entirely for this exam.
Limited company accounts
Marginal costing
Businesses classify costs by how they behave as output changes. Understanding these categories — such as fixed, variable
Marginal costing
Marginal costing
Break-even is the exact level of sales where a business covers all its costs and makes neither a profit nor a loss. You
Marginal costing
Marginal costing
Managers use marginal costing to make key business decisions. They focus on contribution — the amount each unit of sales
Marginal costing
Partnership accounts
A partnership produces three linked financial statements. The appropriation account shows how the business splits its pr
Partnership accounts
Partnership accounts
Partnerships divide profits between partners using several agreed adjustments. You need to calculate each adjustment cor
Partnership accounts
Partnership accounts
Partners keep two personal accounts each: a capital account for permanent investment and a current account for ongoing t
Partnership accounts
Partnership accounts
When a partner leaves or joins a partnership, the accounts must be adjusted to reflect the change. This involves revalui
Partnership accounts
Partnership accounts
Dissolution means closing down a partnership entirely. AQA will never ask you exam questions about this process.
Partnership accounts
Preparation of financial statements of sole traders
Accounting concepts require businesses to adjust raw figures before producing final financial statements. These adjustme
Preparation of financial statements of sole traders
Preparation of financial statements of sole traders
AQA will never ask you to calculate inventory value using FIFO, AVCO or LIFO. You only need to know that inventory exist
Preparation of financial statements of sole traders
Preparation of financial statements of sole traders
A sole trader uses their ledger accounts to build two key financial statements. These statements show profit earned and
Preparation of financial statements of sole traders
Preparation of financial statements of sole traders
A trial balance lists every account balance a business holds. You use it as your starting point to build the two main fi
Preparation of financial statements of sole traders
Standard costing and variance analysis
A standard costing system sets a target cost for making a product. Variance analysis then compares that target to the ac
Standard costing and variance analysis
Standard costing and variance analysis
A variance measures the gap between what a business planned to spend or earn and what actually happened. Accountants cal
Standard costing and variance analysis
Standard costing and variance analysis
Variances rarely happen in isolation. A decision that causes one variance to be favourable often causes a related varian
Standard costing and variance analysis
Standard costing and variance analysis
A reconciliation statement explains the gap between planned and actual profit or cost. It lists every variance and shows
Standard costing and variance analysis
The double entry model
Every financial transaction a business makes gets recorded twice — once as a debit and once as a credit. Businesses firs
The double entry model
The double entry model
At the end of an accounting period, a business closes its revenue and expense accounts by moving their totals into an in
The double entry model
The double entry model
Source documents are the original paper or digital records that prove a transaction happened. Each type of transaction p
The double entry model
The double entry model
Books of prime entry are the first place a business records a transaction. Each book handles a specific type of transact
The double entry model
The double entry model
A business keeps three separate ledgers to organise its accounts. The receivables ledger tracks money customers owe. The
The double entry model
The double entry model
Some transactions need special double entry treatment. These include discounts given to customers, selling or scrapping
The double entry model
The double entry model
Businesses split their spending and income into two types. Revenue items relate to day-to-day trading. Capital items rel
The double entry model
The double entry model
Adjustments correct the raw figures in the accounts so they reflect reality at the year end. Each adjustment requires sp
The double entry model
The double entry model
An income statement shows whether a business made a profit or a loss over a period. You build one by taking figures from
The double entry model
The double entry model
A statement of financial position lists everything a business owns and owes at one point in time. It groups items under
The double entry model
The double entry model
A prepayment is an expense paid early that belongs to a future period. An accrual is an expense already used but not yet
The double entry model
The double entry model
An irrecoverable debt is money a customer owes but will never pay. Accountants remove it from the records and treat it a
The double entry model
The double entry model
Depreciation spreads the cost of a non-current asset across its useful life. You record it each year using two ledger ac
The double entry model
The impact of ethical considerations
Accountants follow five core ethical principles that guide every professional decision they make. These principles are i
The impact of ethical considerations
The impact of ethical considerations
Ethical principles shape how accountants, auditors, and company boards behave. Structures like corporate governance and
The impact of ethical considerations
The impact of ethical considerations
Three bodies set the legal and regulatory rules that govern how accountants and businesses must behave. These are the Fi
The impact of ethical considerations
The impact of ethical considerations
Professional bodies like CCAB and CIMA write codes of conduct that tell accountants how to behave ethically. They also e
The impact of ethical considerations
The impact of ethical considerations
Accountants must follow ethical principles and formal rules when dealing with everyone they work with. Professional bodi
The impact of ethical considerations
The impact of ethical considerations
When an accountant suspects wrongdoing, they must follow a clear set of steps. These steps protect them, their client, a
The impact of ethical considerations
Types of business organisation
Businesses can be owned and structured in four main ways. Each structure affects who owns the business, who is liable fo
Types of business organisation
Types of business organisation
Each type of business ownership brings different advantages and dangers. The ownership structure also determines what fi
Types of business organisation
Types of business organisation
Businesses raise money in different ways depending on their legal structure. A sole trader uses their own savings, while
Types of business organisation
Verification of accounting records
Accountants use four tools to check that their double entry records contain no mistakes. These tools are the trial balan
Verification of accounting records
Verification of accounting records
A control account is a summary record that checks the total of a ledger. It can contain unusual entries such as contra e
Verification of accounting records
Verification of accounting records
When a bookkeeper makes a mistake in the accounts, they fix it by writing a correcting entry in the general journal. If
Verification of accounting records
Verification of accounting records
Errors in the accounts can make profit look wrong and distort the balance sheet. Once you find and fix an error, you mus
Verification of accounting records
Verification of accounting records
Verification techniques help accountants check for errors in their records. Each technique catches some errors but misse
Verification of accounting records
Verification of accounting records
Some bookkeeping mistakes cause the trial balance totals to disagree. These four error types — addition, partial omissio
Verification of accounting records
Verification of accounting records
Some accounting errors leave the trial balance perfectly balanced, so they stay hidden. Six named error types can do thi
Verification of accounting records