AAT Business Awareness Flashcards

A set of vocabulary flashcards based on essential business awareness concepts from the AAT exam review notes.

Purpose of a business

To provide goods/services and generate value, usually profit.

Sole trader

A business owned by one person with unlimited liability.

Partnership

Two or more people jointly own and run a business.

Limited company

A separate legal entity whose owners have limited liability.

Limited liability

Owners generally risk only the amount invested or guaranteed.

Stakeholder

Anyone affected by or able to affect a business.

Key business stakeholders

Owners, employees, customers, suppliers, lenders and government.

SWOT analysis

Strengths, Weaknesses, Opportunities and Threats.

Strengths and weaknesses

Internal factors within the organisation's control.

Opportunities and threats

External factors affecting the organisation.

PESTLE analysis

Political, Economic, Social, Technological, Legal and Environmental factors.

Business objective

A target the business aims to achieve.

SMART objective

Specific, Measurable, Achievable, Relevant and Time-bound.

Revenue

Income from selling goods or services.

Profit

Revenue minus expenses/costs.

Gross profit

Revenue minus cost of sales.

Operating profit

Gross profit minus operating expenses.

Fixed cost

A cost that stays broadly constant despite activity levels.

Variable cost

A cost that changes with output or activity.

Break-even point

The level of sales where total revenue equals total costs.

Cash flow

The movement of cash into and out of a business.

Working capital

Current assets minus current liabilities.

Liquidity

The ability to meet short-term financial obligations.

Budget

A financial plan showing expected income and expenditure.

Variance

The difference between budgeted and actual results.

Favourable variance

Actual performance is better financially than budget.

Adverse variance

Actual performance is worse financially than budget.

Asset

A resource controlled by a business with future economic benefit.

Liability

A present obligation expected to require economic resources.

Capital

Money or other resources invested in a business.

Depreciation

Allocation of an asset's depreciable amount over its useful life.

Invoice

A document requesting payment for goods or services supplied.

Credit control

Managing customer credit and collecting amounts owed.

Bad debt

A receivable that is unlikely to be recovered.

Internal controls

Controls that reduce errors, fraud and misuse of resources.

Segregation of duties

Different people perform key stages of a transaction.

Fraud

Deliberate deception for financial or personal gain.

Ethics in business

Principles guiding responsible and honest business behaviour.

Corporate governance

Systems for directing, controlling and overseeing an organisation.

KPI

A key performance indicator used to measure performance.

Benchmarking

Comparing performance against standards or other organisations.

Competitive advantage

A factor allowing a business to outperform competitors.

Market segmentation

Dividing customers into groups with similar characteristics.

Market share

A business's sales as a proportion of total market sales.

Supply and demand

Supply is availability; demand is customers' willingness to buy.

Inflation

A sustained rise in the general price level.

Interest

The cost of borrowing or return earned on saving/lending.

Recession

A significant decline in economic activity.

Exchange rate

The value of one currency compared with another.

Diversification

Expanding into new products, services or markets.

Outsourcing

Using an external provider to perform business activities.

E-commerce

Buying and selling goods or services electronically.

Digital transformation

Using digital technology to change and improve business processes.

Cybersecurity

Protects systems, data and business operations from threats.

GDPR

UK data protection rules based on the UK GDPR and Data Protection Act 2018.

Personal data

Information relating to an identified or identifiable living person.

Sustainability

Operating in ways that meet needs without harming future generations.

Corporate social responsibility

A business's responsibility for its social and environmental impact.

Purchase order

A buyer's formal request for goods or services.

Credit note

A document reducing the amount owed on an invoice.

Trade receivable

A customer who owes the business money.

Trade payable

A supplier the business owes money to.

Insolvency

A situation where a business cannot meet its financial obligations.

Going concern

The assumption that a business will continue operating.

Audit

An independent examination of financial statements and related evidence.

Materiality

Whether an omission or misstatement could influence users' decisions.

Professional competence

Maintaining sufficient knowledge and skill to perform work properly.

Professional scepticism

A questioning mind and critical assessment of evidence.

Confidentiality

Protecting information and not disclosing it without proper authority.

Objectivity

Avoiding bias, conflicts of interest and undue influence.

Integrity

Being straightforward, honest and truthful.

Accounting equation

$$\text{Assets} = \text{Capital} + \text{Liabilities}$$

Source document

Original evidence supporting a financial transaction.

Management accounting

Internal planning, decision-making, control and performance management.

Financial accounting

Reporting financial performance and position to external users.

Stakeholder conflict

When the interests of different stakeholder groups compete.

Risk

The possibility that an event will affect objectives.

Risk management

Identifying, assessing and responding to business risks.

Opportunity cost

The benefit given up by choosing one option over another.

Sunk cost

A cost already incurred that cannot be recovered.

Marginal cost

The additional cost of producing one more unit.

Marginal revenue

The additional revenue from selling one more unit.

Contribution

Sales revenue minus variable costs.

Contribution per unit formula

$$\text{Contribution per unit} = \text{Selling price per unit} - \text{Variable cost per unit}$$

Break-even formula

$$\text{Break-even point} = \frac{\text{Fixed costs}}{\text{Contribution per unit}}$$

Cash budget

Forecasting cash receipts, payments and future cash balances.

Business plan

A document setting out objectives, strategy and financial plans.

Strategic planning

Long-term planning to achieve an organisation's objectives.

Operational planning

Short-term planning for day-to-day activities and resources.

Delegation

Passing responsibility and authority for tasks to others.

Leadership

Influencing and guiding people towards organisational goals.

Conflict of interest

A personal interest that could improperly influence professional judgement.

Due care

Acting diligently and according to professional standards.