cash flow forecasting

Question 1

cash flow forecasting def

Answer 1

predicts the net cash flows of the business over a future period, usually a month

Question 2

cash flow forecasting extra info

Answer 2

.It tells us nothing about profit
.The closing balance of one month is the opening balance of another month
.A negative closing balance does not mean that the firm is bankrupt

Question 3

3 reasons for using cash flow forecasting

Answer 3

.Identify potential shortfalls in cash balances
.See whether the trading performance of the business (revenues, costs and profits) turns into cash.
.Analyse whether the business is achieving the financial objectives set out in the business plan

Question 4

benefits to cash flow forecasting

Answer 4

Identifies potential shortfalls in cash balances in advance
Makes sure that the business can afford to pay suppliers and employees
Spot problems with customer payments
As an important discipline of financial planning
External stakeholders such as banks may require a regular forecast

Question 5

drawbacks to cash flow forecasting

Answer 5

affected by external factors
limited amount of info available
very uncertain
involves a degree of probability

Question 6

fixed costs def

Answer 6

costs that dont change with level of output

Question 7

variable cost per unit (formula)

Answer 7

variable costs / no. of sales

Question 8

statement of comprehensive income

Answer 8

sales revenue - all expenses

calculates profit or loss

Question 9

prepayments

Answer 9

expense made in advance

shown as current asset