Section 3 - 3.7 cash flow

Question 1

Assets

Answer 1

Our items with a monetary value that belong to a business. They can either be fixed assets e.g. machinery, tools and buildings or current assets e.g cash, stock and debtors

Question 2

Cash

Answer 2

Is the current asset and represents the actual money a business has. It can exist in the form of cash in hand or cash at bank

Question 3

Cash flow

Answer 3

Refers to the transfer or movement of money into and out of an organization. Cash inflows mainly come from sales revenue where is cash outflows offer items of expenditure

Question 4

Cash flow forecast

Answer 4

Is the financial document that records the actual cash inflows and cash outflows of a business during a specified trading period, usually 12 months

Question 5

Closing balance

Answer 5

Refers to the value of cash left in a business at the end of each month, as shown in its cash flow forecast or statement,
using the formula:
closing balance = opening balance + net cash flow

Question 6

Current assets

Answer 6

Are liquid resources and buy business i.e. cash, debtors and stocks

Question 7

Current liabilities

Answer 7

Represent the money that a business shows that needs to be repaired within the next 12 months e.g. overdraft, creditors and tax

Question 8

Creditors

Answer 8

Our businesses that have sold goods or services on trade credit so will collect this money from debtors at a future date

Question 9

Deptors

Answer 9

Are customers who have purchased goods or services on credit, so owe the business money which is collected at a late date

Question 10

Expenses

Answer 10

Represent the expenditure in the working capital cycle, i.e. costs of production such as salaries, rent, advertising and distribution

Question 11

Fixed assets

Answer 11

Are illiquid resources owned by a business and are not intended for resale within the next 12 months but are used to generate revenue e.g. land, vehicles and trademarks

Question 12

Insolvency

Answer 12

Is a situation where a firms working capital is insufficient to meet its current liabilities. It can lead to the collapse of the business as creditors will take legal action to recover their money

Question 13

Liabilities

Answer 13

Is the ability of a business to convert assets into cash quickly without a full and its value

Question 14

A liquidity problem

Answer 14

Occurs when a business does not have enough cash to pay its current liabilities (short-term debts)

Question 15

Net cash flow

Answer 15

Refers to the cash that is left over after cash outflows have been accounted for from the cash inflows, per time.

Question 16

Opening balance

Answer 16

Refers to the value of cash in a business at the beginning of each month, as shown in its cash flow forecast or statement. It is equal to the closing balance in the previous month

Question 17

Overheads

Answer 17

Are the costs not directly associated with production process yet necessary for providing and maintaining business operations e.g. lighting, rent, security and insurance

Question 18

Overtrading

Answer 18

Occurs when a business attempts to expand to quickly without the sufficient resources to do so, usually by accepting too many orders, thus harming it’s cash flow position

Question 19

Profit

Answer 19

And its simplest form is the positive difference between a firms total sales revenue and it’s total cost of production

Question 20

Stock/inventory

Answer 20

Is the physical goods that a business has in his possession for further production, (raw materials and unfinished goods) or for sale (finished goods)

Question 21

Working capital/net current assets

Answer 21

Is the amount of finance available to a business for its daily operations. It is calculated by current assets minus current liabilities

Question 22

The working capital

Answer 22

refers to the time interval between cash outflows for cost of production and cash in flows from customers who received their finished goods and services