3.5 Importance of cash

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Which term describes the money that a business has immediately available, either to hand or in a bank account?: Cash
What is meant by 'profit'?: The amount left when total costs are subtracted from revenue
Which term describes a situation where a business's total costs are greater than the revenue it receives?: Loss
What is meant by 'revenue'?: The income a business generates from selling its goods or services
Which term describes a business being unable to pay its debts as they fall due?: Insolvency
What is meant by 'liquidation'?: Selling off a business's assets and closing the business down
Which term describes the items a business owns, such as vehicles, equipment and stock, that it can sell to raise cash?: Assets
Why is a business's profit not the same as its cash?: Profit only becomes cash once the customer has paid and the money has cleared
Why does a new enterprise need cash even when it is not yet making a profit?: So it can pay its bills when they are due
A business made a profit of £3,000 last month but has almost no cash. Which is the most likely reason?: Its customers bought on credit and have not paid yet
A business owes its main supplier £2,000 but has no cash to pay. What is a likely consequence?: The supplier may refuse to sell to it again
A business that is short of cash sells its delivery van to pay its bills. Which consequence of a lack of cash is this?: Selling assets to raise cash
A business cannot pay its rent on time because it has run out of cash. What is the most likely consequence?: It will be charged a penalty for paying late
Which of the following is NOT a consequence of a lack of cash?: Its lenders trust it more
A business has borrowed money several times to pay its bills and has paid some of them late. What is the most likely result?: It will find it harder to borrow money in future
A business that keeps running out of cash stops advertising and reduces the hours its staff work. Which consequence of a lack of cash is this?: Cutting costs
Which of the following is an example of a business borrowing money because it has run out of cash?: Taking out a bank overdraft
A shop has run out of cash and cannot pay its supplier for new stock. What is the most likely result?: It will have fewer products to sell

3.5 Importance of cash

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