3.5.2 (2) cash flow

Question 1

what is cash flow?

Answer 1

the total cash inflows minus the total cash outflows

Question 2

what are cash inflows?

Answer 2

payments recieved by a business

Question 3

what are cash outflows?

Answer 3

payments made by a business such as to suppliers and workers

Question 4

sources of information for cash flow forecasts: inflows

Answer 4

sales / revenue
taking out a loan
start up capital
debtors

Question 5

sources of information for cash flow forecasts: outflows

Answer 5

rent
salaries
cost of supplies
paying back loans
utilities

Question 6

what is liquidation?

Answer 6

turning assets into cash

Question 7

what does insolvent mean?

Answer 7

when a business cannot meet its short term debts

Question 8

what are debtors?

Answer 8

customers who have bought products on credit and agreed to pay at a future date

Question 9

what are credit sales?

Answer 9

value of goods sold to customers who do not pay cash immediately

Question 10

what is a cash flow forecast?

Answer 10

an estimate of a firm’s future cash inflows and outflows

Question 11

what is net monthly cash flow?

Answer 11

the estimated difference between monthly cash inflows and outflows

Question 12

what is the opening balance?

Answer 12

cash held by the business at the start of the month

Question 13

what is the closing balance?

Answer 13

cash held at the end of the month - becomes next months opening balance

Question 14

why do businesses forecast cash flows?Q

Answer 14

plan for the future
predicting future objectives
identifying cash shortages

Question 15

what are some limitations on cash flow forecasts?

Answer 15

cannot be soley relied upon
can lead to bad decisions
doesn’t consider unpredictable factors
doesn’t consider shifts in demand

Question 16

what are creditors?

Answer 16

suppliers owed money by the business

Question 17

what is credit control?

Answer 17

the monitoring of debts to ensure that credit periods are not exceeded

Question 18

what is bad debt?

Answer 18

unpaid customer bills that are now very unlikely to ever be paid

Question 19

what is overtrading?

Answer 19

expanding a business rapidly without obtaining all of the necessary finance so that a cash flow shortage develops

Question 20

reasons for cash flow problems:

Answer 20

cost of living crisis
increase in inflation rates
union strikes
being ‘out of season’

Question 21

ways to increase cash inflows:

Answer 21

overdraft
short-term loans
sale of assets
sale and leaseback
reduce credit terms to customers
debt factoring

Question 22

what is an overdraft?

Answer 22

arranging a flexible loan on which the business can draw as necessary up to an agreed limit

Question 23

what is a short-term loan?

Answer 23

a fixed amount of money borrowed for an agreed amount of time

Question 24

what is sale of assets?

Answer 24

cash receipts from selling off redundant assets

Question 25

what is sale and leaseback?

Answer 25

selling an asset but continuing to use it.

Question 26

what is debt factoring?

Answer 26

debt factoring companies buy the debt from a business and offer immediate cash.