cash flow forecasts

Question 1

what is cash in UK accounting?

Answer 1

It represents the most liquid form of an asset, allowing for immediate transactions and payments

Question 2

why is cash important for a business in UK accounting?

Answer 2

1. Liquidity Assessment:
   Cash is the most liquid asset, and its availability is essential for meeting short-term obligations. In the UK, businesses need to assess their liquidity regularly to ensure they can cover immediate expenses.
2. Operational Flexibility:
   Having sufficient cash provides businesses with operational flexibility. It allows them to take advantage of opportunities, respond to unexpected expenses, and navigate economic uncertainties.
3. Dividend Payments:
   Cash is necessary for distributing dividends to shareholders in the UK. Companies must ensure they have sufficient cash reserves to fulfill their dividend commitments.

Question 3

what is the purpose of cash flow forecasting?

Answer 3

1. Spot when the highest cash needs will happen and how much is needed.
2. Check if existing cash or available loans can cover those high needs.
3. Show when more loans might be necessary and how much is needed.
4. Highlight situations where getting more loans may not work, suggesting a need to adjust business plans to match the available funds.

Question 4

what is the purpose of cash flow statements?

Answer 4

1. Find out when the business will need the most money and how much is required.
2. Check if the money on hand or loans can handle those peak needs.
3. Identify when more loans might be needed and how much would be necessary.
4. Point out situations where getting more loans may not be an option, signaling a need to tweak business plans to fit the available funds.

In simpler terms, it helps a business figure out when it’ll need a lot of money, if it has enough or needs loans, and when adjustments to plans might be necessary.

Question 5

what are the cash flow headings?

Answer 5

1. Net cash flow from operating activities.
2. Return on investment and servicing of finance.
3. Taxation.
4. Investing activities.
5. Finance.

A total should be shown for each heading and a total cost of the net cash inflow or outflow before financing.