ACCA Applied Knowledge · Business and Technology

The relationship between accounting and other business functions: formula sheet

Full chapter guide

Key formulas

Financial accounting: users and purpose: External users → statutory financial statements → historic, rule-based; Prepared to a set format under accounting standards and law. It shows past performance and position.
Management accounting: users and purpose: Internal managers → flexible reports → planning, control, decisions; No legal format. Can be forward-looking and cover products, departments or projects.
Treasury focus: Cash + funding + investment + financial risk; Remember it as liquidity, borrowing, surplus cash and risk such as currency and interest rates.
Tax focus: Compliance + planning; Compliance is paying the right tax and filing on time. Planning is legally reducing the tax cost.
Procurement cycle order: Requisition → Purchase order → Goods received note → Supplier invoice → Three-way match → Payment; Learn the order. Exam questions often ask which document comes next or who raises it.
Three-way matching: Purchase order = Goods received note = Supplier invoice (quantity, price, terms); Accounts payable pays only when all three agree. Differences must be investigated first.
The five rights of purchasing: Right quality, quantity, price, time and supplier; Use these as a checklist for any question about purchasing objectives.
Marketing mix (4Ps): Product + Price + Place + Promotion; Service businesses may add People, Processes and Physical evidence (7Ps). Use the version your question or study text uses.
Sales growth: Sales growth % = (Current sales − Previous sales) ÷ Previous sales × 100; A basic sales report measure. Divide by the earlier period, not the later one.
Receivables days: Receivables days = Trade receivables ÷ Credit sales × 365; Used by credit control to monitor how quickly customers pay. Use credit sales if given, otherwise revenue.
Cost-plus price: Selling price = Cost + Mark-up % of cost; A common pricing method accounting supports. Mark-up is on cost; margin is on selling price.
Production function inputs and outputs: Inputs (materials, labour, equipment) → transformation process → outputs (goods or services); Use this to describe any operations function, including service businesses.
Closing inventory: Closing inventory = Opening inventory + Purchases (or production) − Issues (or sales); Use it to check units or values held. Keep units and values separate.
Inventory holding trade-off: Holding costs rise as stock rises; stockout costs fall as stock rises; This is a principle, not a calculation. Good inventory control balances the two.
Material usage variance (quantity): (Standard quantity for actual output − Actual quantity used) × Standard price per unit; Positive means favourable, negative means adverse. Shows how well production controls material use.
Labour efficiency variance: (Standard hours for actual output − Actual hours worked) × Standard rate per hour; Positive means favourable. Links costing data to production performance.
Net pay: Net pay = Gross pay − employee deductions (tax, employee social security, employee pension, other deductions); Deductions are held by the employer and paid over to the authorities. They are a liability until paid.
Gross pay: Gross pay = basic pay + overtime + bonuses + allowances; Gross pay is what the employee earns before any deductions.
Total employment cost to employer: Employer cost = gross pay + employer's social security and pension contributions; Employer contributions are an extra cost to the business and are not deducted from the employee.
Core HR activity list: Plan → Recruit → Train → Appraise → Reward → Retain or exit; A useful order to remember when you classify an HR task in a question.
Accounting system cycle: Input → Processing → Storage → Output; Use this to structure any question on how a system works. Controls apply at every stage.
General controls vs application controls: General = whole IT environment; Application = specific program or transaction; Examples of general: access, backup, change control. Examples of application: validation, reconciliation, check digits.
Integrated system principle: One entry of data → one shared database → many users and reports; This is the core benefit of ERP: no duplication, consistent data.
Quality of output: Garbage in, garbage out (GIGO); A system cannot correct wrong input. Input controls matter most.
Purchasing document flow: Requisition → Purchase order → Goods received note → Supplier invoice → Payment; Accounts payable matches the order, goods received note and invoice before paying (three-way match).
Sales document flow: Customer order → Despatch note → Sales invoice → Receipt of cash; Sales, warehouse and accounts receivable all depend on the same order record.
Budget flow: Principal budget factor → Functional budgets → Master budget; The principal budget factor is the main limit on activity, often sales demand. Plan that budget first.
Payroll flow: HR records and timesheets → Payroll calculation → Payment and ledger entries; HR supplies starters, leavers and pay rates. Finance pays and records the cost.

Quick revision

Finance records transactions, reports results, and supports decisions and control.
Finance gives other functions budgets, cost information and performance reports.
Purchasing sources goods and services, and its documents feed the payables records.
Sales and marketing generate orders and revenue, and credit control supports receivables and cash.
Production and operations use inventory and labour, and they supply cost data to finance.
Logistics covers moving and storing goods, so it affects inventory records and costs.
HR handles recruitment, training and staff records, and payroll turns these into pay and deductions.
IT provides the systems that capture, store and protect financial data.
Good information flows between functions improve accuracy and speed of decisions.
Poor communication between functions causes errors, such as invoices for goods never received.
Separating duties between functions helps prevent error and fraud.
In a scenario, name the function first, then the data it creates or needs.

Common mistakes

Saying management accounting must follow accounting standards. Fix: Remember that management accounts are for internal use and have no required format.
Treating treasury as the same as bookkeeping. Fix: Bookkeeping records transactions. Treasury decides how to fund the business, hold cash and manage financial risk.
Confusing the purchase requisition with the purchase order. Fix: The requisition is an internal request from a department. The order is the external document sent to the supplier.
Thinking the supplier raises the goods received note. Fix: The GRN is made by the buyer's stores or goods inward team. The supplier sends a delivery note and an invoice.
Treating marketing as only advertising. Fix: Remember advertising is only part of promotion, which is only one of the 4Ps.
Putting discounts and credit terms under promotion. Fix: In the marketing mix, price covers list price, discounts, allowances and credit terms. Promotion covers communication.
Treating operations as only manufacturing. Fix: Remember operations covers service delivery too. A hospital or bank transforms inputs into outputs.
Saying more inventory is always better. Fix: Always weigh holding costs against stockout costs. Excess stock ties up cash and risks obsolescence.
Treating payroll as purely an HR task. Fix: Remember that payroll is about calculation, payment and records. Many organisations place it in finance. Say it depends on the organisation, and that HR and finance both contribute.
Confusing gross pay with net pay. Fix: Gross is before deductions, net is after. Write both words next to your answer and check which one the question asks for.

Exam tips

Read for the user of the information first. It usually gives you the answer.
In multiple response questions, select exactly the stated number of options. Check each statement separately.
Watch for absolute words such as only, always and must. They often make a true statement false.
Learn the financial vs management accounting contrasts: users, format, time focus and detail.
Do not spend long on this topic. Questions are usually short, so move on if you are stuck.
Learn the document order and the person who raises each one. This is the most common objective test angle.
For control questions, look for segregation of duties. Ordering, receiving and paying should be done by different people.
In number entry questions, compare quantities on the GRN with the invoice and calculate on the received quantity.