Cash & Cash Flows

Question 1

Key objectives of cash management

Answer 1

Liquidity, Profitability, Security

Question 2

Cash

Answer 2

• Petty cash
• Bank current a/c balance,
• Marketable securities (can be converted easily into cash)
• Unused portion of overdraft

Question 3

Cash flow

Answer 3

Movements of funds into & out of a business

Question 4

Working capital

Answer 4

Current asset - Current liability

Question 5

WCC

Answer 5

Time between cash outflow for material & cash inflow from customer

Question 6

Payment to supplier of finance :

Answer 6

• Drawings (sole trader/partner)
• Interest (debentureholder, bondholder, banks)
• Dvidends (shareholder)

–> dividend – paid twice a year

Question 7

Cash received from providers of finance :

Answer 7

• Equity share capital
• Long-term loans

Question 8

Operational cash flow

Answer 8

Difference between cash received & cash paid

= Cash in - Cash out

Question 9

Negative cash flow : Causes

Answer 9

• Spend on NCA purchases on
• Pay business acquisitions
• High inflation
• Dividend > Cash surplus
• Debt repayment

Question 10

Advantages of cash flow accounting

Answer 10

Lender : See entity’s ability to repay

Management : Information for decision making (relevant cost is cash flow, not profit)

Shareholder & auditor : Stewardship accounting [ financial info abt resources u control but not own ]

–> Cash flow are easier to prepare & more useful than profit forecast

Question 11

What is working capital

Answer 11

Trading asset

The current assets needed for a business to sustain operations

Question 12

Working Capital Cycle

Answer 12

Masures the amount of time for cash used for working capital to be converted back into cash

Question 13

3 types of cash flow

Answer 13

• Operating
• Financing
• Investing

Question 14

Operating cash flow

Answer 14

Associated with the operations of the entity

Question 15

Investing cash flow

Answer 15

Associated with non-current assets of the entity

Question 16

Financing cash flow

Answer 16

Associated with the entity’s financing

Question 17

Examples of operating cash flow

Answer 17

• Cash from sales
• Cash from expenses (wages, rent, taxes)
• Cash from non-current asset (rent, royalties)

Question 18

Examples of investing cash flow

Answer 18

• Cash from disposal of NCA
• Payment for purchase of NCA

Question 19

Examples of financing cash flow

Answer 19

• Cash received from
  a) loan
  b) issue of shares
  c) capital introduced by owner
• Cash out to
  a) Owners (Drawings)
  b) Shareholder (Dividends)
  c) Service loans

Question 20

What is economic trend

Answer 20

General long-term direction in which the economy moves

Question 21

What is GDP ?

Answer 21

Gross Domestic Product

Net output of an economy. It is the total monetary value of all the goods and services produced by the examined economy and is usually net of exports and imports.

Question 22

4 stages of Economic Cycle

Answer 22

• Boom
• Recession
• Slump
• Recovery

Question 23

Another name for boom

Answer 23

Peak

Question 24

Another name for recession

Answer 24

Contraction

Question 25

Another name for slump

Answer 25

Depression, trough

Question 26

Another name for recovery

Answer 26

Expansion

Question 27

Managements during economic downturn

Answer 27

• Re-examine value provided to customer
• Examine expenses
• Rebalance workforce
• Ensure line of credits are available
• Maintain strong relationships with provider of funds
• Invest in areas that will create sustainable advantage and ensure company growth when the economy improves