cash flow/income statement

Question 1

Why is it important to forecast cash flow?(overall)

Answer 1

Cash is the lifeblood of a business. (1)
If a business runs out of cash,
it’ll be unable to pay suppliers,overheads and employers (1)
and may be insolvent leading to business failure (1)

Question 2

What are 3 problems with cash flow forecasts?

Answer 2

-Sales prove to be lower to be expected
-Customers do not pay up on time
-Cost of production proves to be higher than expected

Question 3

What are 2 reasons why cash flow forecast is important? (specifically)

Answer 3

-Ensures business can afford to pay suppliers and employees
-Identifies potential shortfalls in cash balances in advance

Question 4

State 3 reasons for poor cash flow

Answer 4

-Poor sales
-Overtrading
-Poor business decisions

Question 5

What is an income statement?

Answer 5

A type of financial statement showing how income has changed over time

Question 6

What are 2 purposes to an income statement?

Answer 6

-Stakeholders will wanna see performance of a business
-Figures can be compared with previous year accounts,targets and against rival firms