AQA A-Level Accounting (All of Y12 topics)

• Accountant


  Responsible for providing reliable and relevant information for the various stakeholders of a business
• Responsibilities of an accountant


  1. Preparing financial statements

  2. Checking financial statements provide a true and fair view (auditing)

  3. Introducing accounting procedures for new businesses

  4. Analysing financial information to provide advice

  5. Producing budgets

  6. Ensuring financial statements and tax returns are submitted by deadlines
• Management accounting


  Focuses on planning, control and decision making. Prepared for internal use within the business, to provide information for internal rather than external stakeholders.
• Management accounting


  1. Planning (preparing budgets)

  2. Control (standard costing and calculating variances)

  3. Decision making (short term using marginal costing, long term using capital investment appraisal)
• Financial accounting


  Focuses on using historical information to prepare financial statements for external stakeholders - mainly shareholders, but also for government (HMRC), banks and potential investors.
• Financial statements


  • Income statement
  • Statement of financial position (previously referred to as a balance sheet)
  • Statement of cash flows
  • Annual report
• Bookkeepers


  Responsible for recording day-to-day business transactions, including maintaining accounting records, entering transactions in the books of prime entry and the ledgers, and checking the accuracy of accounting records. May also assist in the preparation of financial statements by preparing the trial balance.
• Ledger clerks


  Tend to only deal with one part of the accounting records and the ledgers.
• Accountants


  Responsible for the preparation of the income statement and the statement of financial position. Make sure accounting concepts have been applied and the financial statements show a true and fair view of the business.
• In some businesses, the bookkeeper may prepare the financial statements and the accountant may be involved in the bookkeeping.
• Auditors


  Appointed by the directors of limited companies to independently check the financial statements that have been prepared by the accountants who work for the company. Report back to the shareholders as to whether the financial statements provide a 'true and fair' view of the performance and financial position of the company.
• Types of business organisation

  The different types of ownership of an organisation: sole trader, partnership and limited company (this can be a private limited company or a public limited company)
• Sole trader


  • A business that is owned and controlled by one person, although they may employ other people
• Advantages of being a sole trader

  • The owner keeps all the profits
  • The owner is his or her own boss, making all the decisions
  • It is quicker and easier to set up this type of business than a partnership or limited company
  • The sole trader's financial statements remain private and do not have to be made available to the public
• Disadvantages of being a sole trader

  • The owner (plus what he or she can borrow) is the only source of capital
  • The owner may experience long working hours and a heavy workload
  • The owner may lose money if sick or on holiday
  • The owner has unlimited liability - this means their personal assets are at risk if the business is unable to pay its debts
• Partnership


  • A business that is jointly owned and controlled by more than one person
• Advantages of a partnership

  • More than one source of capital (though not necessarily equal amounts)
  • Shared workload
  • Partners can specialise, allowing each to concentrate on what they do best
  • It is quicker and cheaper to set up than a limited company
  • The partnership's financial statements remain private and do not have to be made available to the public
• Disadvantages of a partnership

  • Profits have to be shared between the partners (not necessarily equally)
  • There can be disagreements between the partners
  • The partners will have unlimited liability and their personal assets are at risk
• When setting up a partnership, it is advisable to write a deed of partnership (also known as a partnership agreement)
• Limited company


  • A separate legal entity to the people who own it or run it
  • Owned by shareholders, who provide the capital
  • Must have a minimum of two shareholders but there is no maximum
  • Controlled and run by directors, who are appointed by the shareholders
  • In a small company, the main shareholders may also be the directors
  • To set up a limited company, two detailed and complex documents must be completed: the Memorandum of Association and the Articles of Association, and thses should be submitted to Companies House
  • The profits are payable to the shareholders in the form of dividends, although some of the profits are usually retained in the business for future use
• Advantages of a limited company

  • More capital can be raised by selling shares
  • The shareholders have limited liability, which means less risk. The most that they can lose is what they paid for their shares; they do not have to provide any more money to pay the company's debts
• Disadvantages of a limited company

  • It takes longer and is more expensive to set up a limited company than a sole trader or partnership
  • There is more paperwork and additional costs each year than a sole trader or partnership
  • The profits have to be shared with the shareholders
  • The original owners will lose control of the business if they own fewer than 50 per cent of the shares
  • Financial statements are no longer confidential as anyone can obtain them from Companies House or, for a public limited company (plc), from the company's website
• Private limited companies ('Ltd')

  Cannot sell their shares on the stock market
• Public limited companies (plc)

  Can sell their shares on the stock market
• Owner's capital


  Money introduced by the existing owner of the business, an internal source of finance
• Advantages of owner's capital

  • No interest or repayments
  • No loss of control of the business
  • No need to share profits with new partners or through dividends to shareholders
• Disadvantages of owner's capital

  • There may not be enough cash available from the current owner
  • It is a slow way of financing expansion, so you may miss out of profits
• Partners' capital


  Raising money from partners' capital involves either changing from a sole trader to a partnership, adding a new partner to an existing partnership or existing partners contributing additional capital
• Advantages of partners' capital

  • No interest or repayments
  • New partners can add expertise and share the workload
• Disadvantages of partners' capital


  • It may not be possible to find new partners able to contribute the required capital
  • Control of the business and profits must be shared with any new partners
• Share capital (ordinary shares)


  Money invested by shareholders, which makes them owners of a limited company. Shares are a permanent external source of finance.
• Advantages of shares


  • No interest or repayments due
  • Dividends paid out on ordinary shares for depend on what the company can afford
  • No security is needed
  • Shares would reduce the level of capital gearing
• Disadvantages of shares


  • Part of the profit will need to be paid to the additional shareholders
  • Lost control over 50% of the company is so shareholders
  • A large amount paid in dividends can damage
• Debentures


  Long-term loans to a company from investors that may be secured on the assets of the company. Debenture holders receive a fixed amount of interest each year. Debentures are repaid in full at the agreed date. They are a long-term external source of finance.
• Advantages of debentures


  • No loss control of the company (unlike shares)
  • No repayments due for several years (unlike bank loans)
  • After the agreed date, no interest or repayments are needed (unlike share)
• Disadvantages of debentures


  • Interest payable, whether complication afford it or not
  • Large repayments in one lump can damage the companies cash flow at that time
  • They increased the level of capital gearing
  • They may require security
• Bank loan


  A fixed amount that must be repaid, together with interest, over a stated amount of time, usually in equal monthly instalments. Security must often be provided. A bank loan is a long-term external source of finance.
• Advantages of bank loans

  • No further repayments required after a period of time (unlike dividends for shares)
  • No loss for ownership of the business( unlike shares)
  • No large lump-sum repayments which is good for cash flow
• Disadvantages of bank loans

  • Interest is additional cost to the business
  • Repayments must be made, whether or not the business can afford them
  • Increases the level of capital gearing
  • Usually needs security
• Mortgage


  A bank loan that is used to buy property and is secured on that property. It is a long-term, external source of finance.