3.7 Flashcards
Liquidation
When a firm ceases trading and its assets are sold for cash
Insolvent
When a business cannot meet its short term debts
Net cash flow
The sum of cash payments to a business (inflows) minus the sum of cash payments made by it (outflows)
Cash outflows
Payments in cash made by a business, such as those to suppliers and workers
Cash inflows
Payments in cash received by a business, such as those from customers (debtors) or from the bank e.g. Receiving a loan
Current liabilities
Debts of the business that will usually have to be paid within a year
Debtors
Customers who have bought products on credit and will pay cash at an agreed date in the future
Working capital cycle
The period of time between spending cash on the production process and receiving cash payments from customers
Cash flow forecast
Estimate of a firms future cash inflows and outflows
Net monthly cash flow
Estimated difference between monthly cash inflows and outflows
Opening cash balance
Cash held by the business at the start of the month
Closing cash balance
Cash held at the end of the month becomes next months opening balance
Credit control
Monitoring of debts to ensure that credit periods are not exceeded
Bad debt
Unpaid customers bills that are now very unlikely ever to be paid
Over trading
Expanding a business rapidly without obtaining all the necessary finance so that a cash flow shortage develops
