Exam code: 0450, 0986 & 0264, 0774
1/19
0Still learning
Know0
Define cash.
In business, cash is a liquid asset in the form of notes, coins, and money in the bank, essential for meeting immediate payment needs.
Why is cash important for a business?
Cash is important because without it, a business cannot survive; it allows a business to pay suppliers, workers, bills, and avoid liquidation.
What is a cash-flow forecast?
A cash-flow forecast is a prediction of expected cash inflows and cash outflows over a future period, such as three, six, or twelve months.
Did this page help you?
Define cash.
In business, cash is a liquid asset in the form of notes, coins, and money in the bank, essential for meeting immediate payment needs.
Why is cash important for a business?
Cash is important because without it, a business cannot survive; it allows a business to pay suppliers, workers, bills, and avoid liquidation.
What is a cash-flow forecast?
A cash-flow forecast is a prediction of expected cash inflows and cash outflows over a future period, such as three, six, or twelve months.
What is the difference between cash inflow and cash outflow?
Cash inflow is money entering the business, such as sales revenue or loans, while cash outflow is money leaving the business, such as payments for rent, wages, or bills.
True or False?
The closing balance at the end of a period is always the same as the opening balance at the start of that period.
False.
The opening balance at the start of a period is usually the same as the closing balance from the previous period, but the closing balance changes based on net cash flow during the period.
Define net cash flow.
Net cash flow is the difference between cash inflows and cash outflows in a given period.
What can happen to a business if it cannot pay its workers or suppliers due to cash-flow issues?
If a business cannot pay its workers or suppliers, production is likely to cease and the business could be forced into liquidation and fail.
Give an example of a typical cash outflow for a business.
A typical cash outflow for a business could be paying staff wages, buying raw materials, or paying bills such as electricity.
How does trade credit help a business manage its cash flow?
Trade credit allows a business to receive stock now and pay for it later, delaying cash outflows and improving short-term cash flow.
How is the closing balance calculated in a cash flow forecast?
The closing balance is calculated by adding the opening balance to the net cash flow for the period.
What is the first step in completing a cash flow forecast?
The first step is to gather information about all expected cash inflows and outflows for the forecast period.
How does a business calculate total cash inflows for a month in a cash flow forecast?
Total cash inflows are calculated by adding all inflows from sales and capital introduced for that month.
True or False?
Net cash flow is calculated by subtracting total cash outflows from total cash inflows.
True.
Net cash flow equals total cash inflows minus total cash outflows.
Define opening balance in a cash flow forecast.
The opening balance is the previous month’s closing balance carried forward to the start of the new month.
How can managers use a cash flow forecast to make financial decisions?
Managers can use cash flow forecasts to anticipate periods of negative balances, arrange loans or overdrafts, and plan for healthy sales periods.
Name two methods a business can use to overcome cash flow problems.
A business can reduce the credit period offered to customers or arrange an overdraft facility with its bank to overcome cash flow problems.
True or False?
Selling excess stock is a way to improve cash flow.
True.
By selling excess stock, a business turns less liquid assets into cash and may reduce storage costs.
Define overdraft facility.
An overdraft facility allows a business to spend more money than it has in its bank account, up to an agreed limit.
What is one potential drawback of introducing new capital to solve cash flow problems?
Introducing new capital may result in the dilution of control if additional investors are brought into the business.