1.3.3 Cash and cash-flow

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Which of these is a cash outflow for a business?: Paying rent on a shop
Why is it important for a business to have sufficient cash?: So it can pay its bills and avoid insolvency
Which statement about cash and profit is correct?: A profitable business can still run out of cash
A business has cash inflows of £9,000 and cash outflows of £7,400 in April. What is its net cash flow for April?: £1,600
A business opens June with £2,000 in the bank. Its cash inflows are £5,000 and its cash outflows are £6,200. What is its closing balance?: £800
In a cash-flow forecast, the closing balance of one month becomes what in the following month?: The opening balance
A cash-flow forecast shows a negative net cash flow in March but a positive closing balance. What does this mean?: Cash outflows were higher than inflows in March
A cash-flow forecast shows a closing balance of -£500 for July. Which statement is correct?: The business is forecast to have a cash shortage of £500
Which term describes the money that a business receives over a period of time, for example from the sale of its products?: Cash inflow
What is meant by 'cash flow'?: The movement of money into and out of a business over a period of time
What is the name for the figure found by taking the total money a business receives in a period and subtracting the total money it pays out?: Net cash flow
What is meant by 'insolvency'?: When a business cannot pay its debts and may be forced to stop trading
What is the name for a plan that sets out the money a business expects to receive and pay out over a future period?: Cash-flow forecast
What is meant by the 'closing balance'?: The amount of cash a business expects to hold at the end of a period
What is meant by a cash outflow?: Money that a business pays out over a period of time
What is meant by the opening balance?: The amount of cash a business expects to hold at the start of a period
Why does a business prepare a cash-flow forecast?: To predict when it may run short of cash and plan ahead
A business makes a profit in March, but the cash in its bank account falls during the month. Which of these best explains this?: Customers who bought on credit have not paid yet
A cash-flow forecast shows a closing balance of £1,200 at the end of May and £400 at the end of June. What was the net cash flow in June?: -£800
A cash-flow forecast was prepared before a business was told its rent would rise. What is the effect of the higher rent on the forecast?: The monthly closing balances will be lower than forecast

1.3.3 Cash and cash-flow

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