CASH AND CASH FLOW

Question 1

Cash

Answer 1

Cash is money that a business has on its premises or in its bank account.

Question 2

Profit

Answer 2

The difference between sales revenue and production costs.

Question 3

Cash flow forecast

Answer 3

A statement showing the expected flow of money into and out of a business over a period of time.

Question 4

Types of cash flow

Answer 4

Positive cash flow
Negative cash flow

Question 5

WHY DO WE NEED CASH FLOW?

Answer 5

Many businesses cease trading, not because they lack good ideas or customers, but because their customers have not paid on time and they have no cash reserves to pay their bills such as rent or suppliers of raw material.
We looked at trade credit in an earlier unit. If businesses don’t settle their trade credit bills on time this can result in a problem for their suppliers.
Cash flow forecasts help businesses to identify times when cash flow might be difficult for the business.