Unit 5.5 Cash and cash flow Flashcards
What is the importance of cash to a business?
1) Meeting short-term debts and expenses
2) Providing liquidity
3) To pay workers, suppliers, bills, etc.
What is the usefulness of cash flow forecasting to a business?
1) A planning tool
2) Anticipates periods of cash shortage
3) Enables remedies to be put in place for shortages
4) provides targets
What will a negative clash flow mean to a business?
1) May only be temporary and may not necessarily cause a problem for the business
2) May require the business to obtain additional finance in the form of an overdraft to help it overcome a shortage of cash
3) May mean that the business has to delay payment of money it owes to others, such as suppliers
What are examples of cash inflows?
1) Cash and credit sales
2) Receipt of a bank loan
3) Receipts of share capital
4) Rent received
What are examples of cash outflow
1) Rent
2) Wages/ salaries
3) Insurance
4) Loan repayments
5) Purchases of assets
6) Stock/ raw materials
How do you work out total cash inflow?
Add up all the cash inflows
How do you work out total cash outflow?
Add up all the cash outflows
How do you work out net cash flow?
Total cash inflows- total cash outflows
How do you work out closing cash balance?
Opening cash balance + net cash flow
What is the opening cash flow?
The first month will be given for the rest it is the previous months closing balance
What are the disadvantages of a cash flow forecast?
1) It is only a prediction
2) Customers do not pay on time
3) The cost of raw materials prove higher than expected
4) Certain costs are not included
What is the cash flow forecast?
A statement showing the expected flow of money into and out of a business over a period of time
What is total inflow?
The total amount of cash flowing into a business
What is total outflow?
The total amount of cash flowing out of a business
What is expenditure?
The money that the business pays out
