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Business Unit 3 > Section E > Flashcards

Section E Flashcards

1
Q

Define cash flow.

A

the total amount of money being transferred into and out of a business, affecting liquidity.

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2
Q

Define liquidity.

A

how easily assets can be turned into cash

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3
Q

Give examples of cash in/ inflows/ receipts.

A
  • cash sales
  • donations
  • loans
  • bank interest
  • credit sales
  • sale of assets
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4
Q

Give examples of cash out/ outflows/ payments.

A
  • salaries
  • rent
  • suppliers
  • wages
  • utilities
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5
Q

What is VAT?

A

Value added tax- a tax added to most products and services sold by VAT- registered businesses

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6
Q

How much do you need to earn to be a VAT registered business?

A

£85,000

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7
Q

What is the standard rate that started in 2011?

A

20%

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8
Q

Why produce a cash flow forecast?

A
  • advanced warnings of cash shortages
  • important part of financial control
  • provide reassurance to investors and lenders
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9
Q

How to work out the total in in a cash flow forecast?

A

add up all the cash coming in

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10
Q

How to work out the total out in a cash flow forecast?

A

add up all the cash going out

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11
Q

How to work out the net cash flow in a cash flow forecast?

A

total in- total out

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12
Q

How to work out the opening balance in a cash flow forecast?

A

closing balance of the moth before

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13
Q

How to work out the closing balance in a cash flow forecast?

A

net cash flow + opening balance

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14
Q

Define creditors.

A

People we owe money to (suppliers)

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15
Q

Define debtors.

A

People who owe us money

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16
Q

Define debt factoring.

A
  • selling of debtors to a third party
17
Q

How do you have a good cash flow forecast?

A
  • updated regularly
  • makes sensible assumptions
  • allows for unexpected changes
18
Q

What can cause bad cash flow problems?

A
  • sales are lower than expected
  • market research may have gaps
  • easy to be over-optimistic about sales potential
19
Q

How can a business improve their cash position short term?

A
  • reduce current assets
  • increase current liabilities
  • sell surplus fixed assets
20
Q

How can a business improve their cash flow position long term?

A
  • increase equity finance
  • increase long term liabilities
  • reduce net outflows on fixed assets (eg. rent)

Business Unit 3 (6 decks)

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