6.2 Cash flow Flashcards
What is cash flow?
the money that flows into and out of the business on a day-to-day basis
What are the different types of cash inflow?
Income from sales
Loans from banks
Money invested by the business’s owners
What are the different types of cash outflows?
Buying raw materials
Wages for employees
Rent or mortage
Interest on loans
Taxes
What are the benefits of having a positive cashflow position?
- The business does not need to borrow and can avoid paying interest charges
- A business will be able to arranges long-term loans
- Cash flow issues are a major cause of business faliure
what is a cash flow forecast?
A plan of the expected inflows and outflows to and from a business over a future period of time
what is a cashflow statement?
a record of the cash inflows and outflows that took place over an earlier period of time
What is net cash flow?
a business’ cash inflows minus the cash outflows
what is opening and closing balances?
opening = amount of money availible to a business at the start of the accounting period
closing = amount of money availible to a business at the end of an accounting period
what is the importance of cash flow forecasts?
- managers can identify times when the business may be short of cash
- Managers can take suitable action to avoid cash shortages becoming a major issue
What are the main causes of cash flow problems?
- poor management
- The business is making a loss
- Offering customers too long to pay
What are the solutions to cash flow issues?
Reschedule payments
Cut costs
Use overdrafts
Find new sources of cash inflow
The difference between cash and profit
profit - measures the difference between the values of a business’s revenue and total costs
cash flow - money that flows in and out of the business on day-to-day basis
