Unit 20 Flashcards
Q1. What is a cash-flow forecast?
A1. An estimate of the future cash inflows and outflows of a business.
Q2. What is net cash flow?
A2. Cash inflow minus cash outflow.
Q3. What is liquidity?
A3. The ability of a business to pay short-term debts.
Q4. What are credit sales?
A4. Goods sold to customers who agree to pay at a later date.
Q5. What is positive cash flow?
A5. When a business has a higher cash inflow compared to cash outflow.
Q6. What is negative cash flow?
A6. When a business has a lower cash inflow compared to cash outflow.
Q7. What is working capital?
A7. The ability of a business to pay short-term debts.
Q.8 What is the Importance of cash flow forecast?
A.8 Cashflow forecasts allow businesses to estimate their future expenses and prepare accordingly to ensure all expenses can be paid without any issues. An accurate cashflow forecast needs to be made to ensure that business has a positive cash flow.
Q.9 How can a business improve working capital?
A.9
1) Reducing inventory.
2) Negotiating longer credit terms.
3) Reducing amount of time it takes to receive payment from customers.
Q.10 What are the ways for a business to prepare for cash shortage?
A.10
1) Delay delivery.
2) Use another source of finance: leasing, hire purchase. bank loan.
3) Create overdraft with bank.
Q.11 What are the ways to finance short term cash shortage?
A.11
(1) Ask trade receivables to pay for goods more quickly by offering discounts for early payment.
(2) Negotiate longer credit terms with suppliers.
(3) Delay purchasing non-current assets.
(4) Find other sources for finance for non-current assets.
Q.12 What are the factors affecting length of working capital cycle?
A.12
(1) Level of inventories held and how quickly suppliers are paid.
(2) How long it takes to produce goods for sale.
(3) How quickly business finds buyers for products.
(4) Length of credit period customers.
Q.13 What are the reasons for a business to need cash?
A.13
(1) Pay employee wages.
(2) Pay suppliers.
(3) Pay rent, heating, and other utilities.
Q.14 What is the importance of working capital?
A business has many day to day expenses that is required to pay in order for the business to operate. However, this is not possible without a working capital. This is known as the liquidity of the business.
Q.15 What is the importance of cash flow forecast?
A.15 Cashflow forecasts allow businesses to estimate their future expenses and prepare accordingly to ensure all expenses can be paid without any issues. An accurate cashflow forecast needs to be made to ensure that business has a positive cash flow.
