32. Cashflow

Question 1

Net cash flow =

Answer 1

Total cash inflows - Total cash outflows

Question 2

Opening balance

Answer 2

is the amount of cash the business has at the beginning of each month

Question 3

Closing balance

Answer 3

is the amount of cash that the business expects to have at the end of each month

Question 4

Closing balance =

Answer 4

Net cash flow + Opening balance

Question 5

Constructing a cashflow florecast:

Answer 5

• Cash inflows
• Cash outflows
• Closing balance

Question 6

Use of cashflow forecasts:

Answer 6

• Identifying the timing of cash shortages and surpluses
• Supporting applications for finance
• Enhancing the planning process
• Monitoring cash flow

Question 7

Limitations of cashflow forecasts:

Answer 7

• Some of the financial information used in forecasts will be based on estimates
• Business activity is subjected to external forces that are beyond the control of owners and managers
• Business uses resources in preparing a cashflow forecast
• A cash flow forecast only focuses on one important business variable - cash, other variables are also important.

Question 8

cashflow forecast

Answer 8

the prediction of all expected receipts and expenses of a business over a future time period which shows the expected cash balance at the end of each month

Question 9

Cash inflows

Answer 9

The flow of money into a business

Question 10

Cash outflows

Answer 10

the flow of money out of a business

Question 11

Net cashflow

Answer 11

The difference between the cash flowing in and the cash flowing out of a business in a given time period

Question 12

solvency

Answer 12

the degree to which a business is able to meet its debts when they fall due