Exam code: 4BS1
Which one of the following would be a benefit to a business delaying paying its suppliers?
Select one answer.
Improved cash flow
Increased profit
A reduction in the amount of interest paid
Improved relationship with suppliers
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Which one of the following is a reason why a business would produce a cash flow forecast?
Select one answer.
It is a legal requirement that a business has a cash flow forecast
A cash flow forecast ensures that the business will be successful
It can help a bank decide whether it should lend money to a business
To show the profit and loss of a business in the past six months
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Define the term net cash flow.
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Which one of the following is the difference between cash inflow and cash outflow?
Select one answer.
Opening balance
Net cash flow
Closing balance
Cash flow forecast
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Which one of the following shows money coming in and money going out of a business?
Select one answer.
A mortgage
Break-even
Cash flow
Profit and loss
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Artify Studio was set up in 2015 by Tay Hui Jae in the busy Kampong Glam area of Singapore. Artify Studio’s aim is to have ‘a communal art space where people can come together and paint, where people would be given as much creative freedom as they would have if they were in their own spaces.
’ Artify Studio provides many services including its popular Liberty Art Jam where customers can paint as well as listen to music. The studio offers a Corporate Art Jam and Regular Kids Classes. Customers can purchase art materials after attending the studio.
Artify Studio is a profit-making organisation with a social element. It employs seven part-time people, all of whom are art enthusiasts.
Outline one reason why cash might be important to Artify Studio.
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Which one of the following is used to calculate net cash flow?
Select one answer.
Total cash inflow – total cash outflow
Total cash inflow + total cash outflow
Opening balance – closing balance
Opening balance + closing balance
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Define the term opening balance.
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BrightSpark Tutoring was founded in 2018 by Priya Sharma in the centre of Manchester. BrightSpark Tutoring offers affordable after-school tutoring sessions for secondary school students in subjects such as Maths, English and Science.
The business also runs weekend revision workshops and sells revision guides and stationery to its students. BrightSpark Tutoring currently employs five part-time tutors.
In recent months, BrightSpark Tutoring has been experiencing negative cash flow. Many of its customers pay for tutoring packages on credit, meaning payments are often received weeks after sessions have been delivered. At the same time, the business must pay rent for its premises and wages to its tutors on time each month.
Outline one problem that negative cash flow might cause for BrightSpark Tutoring.
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Gleam is a small commercial cleaning company based in Manchester. It was set up in 2019 by Marcus Webb and employs eight cleaners who work at offices, schools and retail outlets across the city. Gleam has recently taken on several new contracts but is finding it increasingly difficult to manage its finances.
State one reason why Gleam prepares a cash flow forecast.
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Posh Pets Spain (PPS) is a pet hotel in the village of Alhaurin el Grande, Spain. It is run by Rachel Goutorbe, an animal enthusiast, and her team of four pet specialists. PPS offers overnight accommodation with room for seven dogs or cats, a pet grooming service and a shop selling pet products, such as dog coats and dog leads. Pet grooming involves washing, cutting and combing a pet’s coat.
Figure 3 is an extract of financial information from a PPS monthly cash flow forecast.
€ | |
Opening balance | 16 000 |
Cash inflow | 22 000 |
Cash outflow | 20 000 |
Figure 3
Calculate the closing balance. You are advised to show your working.
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Posh Pets Spain (PPS) is a pet hotel in the village of Alhaurin el Grande, Spain. It is run by Rachel Goutorbe, an animal enthusiast, and her team of four pet specialists. PPS offers overnight accommodation with room for seven dogs or cats, a pet grooming service and a shop selling pet products, such as dog coats and dog leads. Pet grooming involves washing, cutting and combing a pet’s coat.
Analyse the importance of cash to PPS.
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Figure 2 is an extract from a cash flow forecast.
£ | |
|---|---|
Cash inflows Sales Other income | 24 000 5 000 |
Cash outflow | |
Net cash flow | 11 000 |
Figure 2
Calculate the cash outflow. You are advised to show your working
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Explain one reason why cash flow forecasting is important to a business.
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Explain one limitation of a cash flow forecast when making business decisions.
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The Alternative Drum School (TADS) was set up in the wealthy area of Cricklade, England in 2008 by Ollie Tanner who had a passion for and enjoyed drumming. Ollie invested all of his savings into the drumming school. He saw the potential of being located away from other drumming schools.
Ollie promotes his business by writing columns in local papers, performing at local music festivals and by word of mouth recommendations. He has invested heavily in computer technology to allow students to produce the music they enjoy playing.
Ollie finds it difficult to maintain a good work-life balance. Ollie currently works 60 hours a week in a business that does not have reliable profits.
One of TADS' objectives is to expand by giving lessons for different musical instruments. To do this it will need to analyse its financial position.
Figure 1 shows an extract from the cash flow forecast for TADS.
February (£) | |
|---|---|
Opening balance | 4 000 |
Cash inflow | 7 000 |
Cash outflow | 3 000 |
Net cash flow | |
Closing balance |
Figure 1
Calculate the closing balance for February. You are advised to show your working.
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The Alternative Drum School (TADS) was set up in the wealthy area of Cricklade, England in 2008 by Ollie Tanner who had a passion for and enjoyed drumming. Ollie invested all of his savings into the drumming school. He saw the potential of being located away from other drumming schools.
Ollie promotes his business by writing columns in local papers, performing at local music festivals and by word of mouth recommendations. He has invested heavily in computer technology to allow students to produce the music they enjoy playing.
Ollie finds it difficult to maintain a good work-life balance. Ollie currently works 60 hours a week in a business that does not have reliable profits.
Analyse the importance of cash to TADS.
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In 1985 Emirates started its airline business with just two aircraft. It is now a well‑known airline with over 265 aircraft flying to over 180 destinations around the world.
Emirates has won many awards for service and reliability. Until 2016 passengers rated Emirates the leading airline to travel with. However, in 2017 its rating dropped from first to fourth.
Figure 3 shows part of a cash flow forecast for Emirates.
June 2017 Dirham billions (AED) | |
|---|---|
Opening balance | 44 |
Cash inflow | 26 |
Cash outflow | 30 |
Net cash flow | |
Closing balance | 40 |
Figure 3
Calculate the net cash flow for June 2017. You are advised to show your working.
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Luca is a small ice cream parlour in Brighton, England, opened in 2018 by Sofia Russo. It employs five part-time staff during the busy summer months. The business is highly seasonal, with the majority of its sales occurring between April and September. During winter, income falls significantly, but Luca still has fixed costs to meet, including rent and insurance. Sofia has limited experience of financial management and is considering expanding the business by adding a hot drinks menu to attract customers during the quieter months.
Evaluate the importance of cash flow forecasting for Luca.
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Folio is an independent bookshop in Edinburgh, Scotland, founded in 2010. It employs 12 staff across two stores and is well regarded for its carefully curated range of titles. Folio hosts regular author events that attract a loyal customer base and has grown steadily over 15 years of trading. The business is profitable but has recently experienced cash flow difficulties due to the high upfront cost of purchasing new stock and delays in receiving payment from schools and libraries that buy books in bulk. Folio's owner is concerned that these cash flow problems could affect the business's ability to operate effectively.
Evaluate the view that Folio should prioritise improving its cash flow over increasing its profit.
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Stamp is a small commercial printing business in Melbourne, Australia, founded in 2016 by Priya Sharma. It produces brochures, leaflets and business cards for local businesses and employs six full-time staff. Stamp is profitable but regularly experiences cash flow difficulties because many of its customers take up to 60 days to pay their invoices, while Stamp must pay its paper and ink suppliers within 30 days. Priya is concerned that this gap between money going out and money coming in could leave the business unable to meet its expenses.
Stamp is considering two options to improve its cash flow:
Option 1: offer customers a discount for paying their invoices within 14 days
Option 2: negotiate extended payment terms with its suppliers
Justify which one of these two options Stamp should choose.
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