30.1 Cash flow forecasts: meaning and purpose

Question 1

Cash flow

Answer 1

The sum of cash payments to a business less the sum of cash payments from the business.

Question 2

Insolvent

Answer 2

When a business cannot meet its short-term debts.

Question 3

Cash flow forecast

Answer 3

An estimate of the future cash inflows and outflows of a business.

Question 4

Cash inflows

Answer 4

Cash payments into a business.

Question 5

Cash outflows

Answer 5

Cash payments out a business.

Question 6

Net cash flow

Answer 6

Estimated difference between cash inflows and cash outflows for the period.

Question 7

Opening cash balance

Answer 7

Cash held by the business at the start of the month.

Question 8

Closing cash balance

Answer 8

Cash held by the business at the end of the month, which becomes next month’s opening balance.

Question 9

Cash control

Answer 9

Monitoring of debts to ensure that credit periods are not exceeded.

Question 10

Bad debts

Answer 10

Unpaid customers’ bills that are now very unlikely to ever be paid.

Question 11

Overtrading

Answer 11

Expanding a business rapidly without obtaining all of the necessary finance, results in a cash flow shortage.