3.3a Money & Cash

Question 1

Questions and Answers by:

Answer 1

Reyhaan Saboerali

11H

Question 2

What does revenue mean?

Answer 2

The total amount of income a business has without costs being deducted.

Question 3

Name four important decisions a cashflow projection allows you to make.

Answer 3

1. Taking on more staff
2. Opening a new branch
3. Identifying risk - run out of cash so need to borrow more money.
4. Taking money out of the business to invest or use as a reward for staff.

Question 4

What does cash mean in terms of business?

Answer 4

The asset that the business holds which allows it to buy supplies and pay wages.

Question 5

What is the difference between positive cash flow and negative cash flow?

Answer 5

Positive cash flow means that more money is coming in than going out whereas negative cash flow means that less money is coming in than going out.

Question 6

What is meant by ‘a business’s cash flow’?

Answer 6

The way in which money comes into the business from customers and goes out of the business to pay suppliers

Question 7

Will a business be successful if they just make profit?

Answer 7

No, they might fail. Therefore they also need enough cash to pay for fixed costs and a reliable cash flow, so that they can plan ahead and invest back into the business.

Question 8

What does credit mean?

Answer 8

The amount of money that a financial institution or supplier will allow a business to use, which it must pay back in the future at an agreed time.

Question 9

What are overheads?

Answer 9

Fixed costs that come from running an office, shop or factory, which are not affected by the number of specific products or services that are sold

Question 10

Explain one reason why having a positive cash flow is important.

Answer 10

It is important to have a positive cash flow so that a business can pay all of the bills, such as rent, insurances and everyday expenses. Besides, a positive cash flow allows the business to plan ahead so that it can find new ways to expand the company. In addition, can the cash be used to invest in research and technology which will help to strengthen their products. By doing this, cash flow will increase which also increases the margin of safety.

Question 11

Define net cash flow.

Answer 11

Net cash flow is the difference between the cash inflows and the cash outflows.

Question 12

Define opening balance.

Answer 12

The opening balance is the amount of money in the business’s bank account at the start of any period:

Question 13

What is the difference between fixed and variable costs?

Answer 13

Fixed Costs- costs never change, not even depending on how many products or services a business sells.
Variable Costs- costs change depending on how many products and services a business sells.

Question 14

What is cash?

Answer 14

The asset that the business holds which allows it to buy supplies and pay wages.
E.g. a farmer

Question 15

What does cash flow allow for a business?

Answer 15

It allows a business to create important decisions.

• taking on more staff
• opening a new branch
• identifying risk, when you run out of cash and need to borrow money.
• taking money out of the business to invest or to use as a reward

Question 16

What does insolvent mean?

Answer 16

It is when a business is unable to pay its debts and/owes more money than it’s owed.

Question 17

What are consumables?

Answer 17

They are items that gets used up. They are regularly used in offices and need to be replaced often.
E.g. pens

Question 18

What is the two types of cash flow?

Answer 18

Cash inflow- it is the money that comes into a business.

Cash outflow- it is the money that leaves a business to pay for fixed/variable costs.

Question 19

Net cash flow (equation)

Answer 19

Net cash flow = cash inflows - cash outflows in a given period.

Question 20

Opening balance (equation)

Answer 20

Opening balance = closing balance of the previous period

Question 21

Closing balance (equation)

Answer 21

Closing balance = opening balance + net cash flow