Business Finance: E1-E2

Question 1

E1- Cash Flow

Answer 1

Formulae:
Net Cash Flow = total inflow - total outflows
Closing Balance = opening balance + net cash flow
Opening Balance = previous closing balance

Question 2

Cash Sale

Answer 2

The customer pays the business immediately as they receive the good/ service

Question 3

Credit Sale

Answer 3

The customer receives the product without paying-> pay within a given time E.g 30 days

Question 4

Cash Flow Forecast

Answer 4

Predicts the money that is expected to come in and the money that is expected to go out

Question 5

Trade Credit

Answer 5

When a business is given credit from their supplier- they can sell the product before paying for it

Question 6

Solutions to Cash Flow Problems:

Answer 6

•Overdraft arrangements
+ Pre-agreed overdraft facilities help businesses through periods of negative cash flow
- Going overdrawn without an agreement is very expensive
•Negotiating terms with creditors
+ Could try to negotiate longer payment terms -> slows down cash flow
- May lose any discount offered for prompt/ early payment
•Reviewing and rescheduling capital expenditure
+ Can identity areas of expenditure that could be cut/ postponed
- Difficult if expenditure is on revenue items, easier if on capital expenditure

Question 7

Uses of Cash Flow Forecasts:

Answer 7

• Planning
• Monitoring
• Control
• Target Setting

Question 8

Inflows/receipts

Answer 8

Cash sales
Credit sales
Loans
Capital introduced
Sale of assets
Bank interest received

Question 9

Outflows/ payments

Answer 9

Cash purchases
Credit purchases
Rent
Rates
Salaries
Wages
Utilities
Purchase of assets
Value Added Tax (VAT)
Bank interest paid

Question 10

E2 - Break Even