Cash Flow

Question 1

Define cash flow

Answer 1

The movement of cash into and out of a business over a period of time

Question 2

Define cash flow forecast

Answer 2

This sets out the anticipated cash inflows and outflows over a set period of time

Question 3

What does a cash flow forecast show ?

Answer 3

It shows the effect on the firms cash balance
(Remember that it’s a prediction/estimate)
Forecasts can later be compared with actual records of cash flow

Question 4

What’s a cash flow statement ?

Answer 4

The actual cash in and cash out of rhe business set over a period of time

Question 5

Why would a firm produce a cash flow statement at the end of the final year ?

Answer 5

Allows you to compare the two
Use cash flow statement to curate cash flow forecast for the next year

Question 6

What are the three key sections of a CFF ( cash flow forecast)?

Answer 6

Cash in
Cash out
Net monthly cash flow

Question 7

Describe cash in

Answer 7

A forecast of cash inflows including receipts from cash and credit sales

Eg selling shares
bank loan
selling assets

Question 8

Describe cash out

Answer 8

A forecast of cash outflow including expenditure on direct costs eg raw materials and indirect costs eg rent

Question 9

How do you calculate net monthly cash inflow

Answer 9

Cash inflow - cash outflow

Question 10

What is the closing balance

Answer 10

The business cash position at rhe end of the time period
Calculated by adding net cash flow to opening balance

Question 11

What is the opening balance

Answer 11

The business cash position at the start of the time period
This will therefore be identical to the closing balance if the previous time oeriod

Question 12

What is a cash flow problem

Answer 12

When cash out is greater than cash in resulting in a negative net cash flow this may(if you have a high opening balance it doesn’t lead to that )lead to a negative closing absence and if this problem is persistent it could lead to bankruptcy (sole trader) or administration (company)

Question 13

Why do firms use CFF?

Answer 13

Can arrange financial cover in advance eg an overdraft

Firm can see problems before rhey arise .it then has time to make improvements

A CFF os required when applying for a loan the bank needs or see that the firm is likely to syrvue and will have enough money to repay loan with interest