Unit 6.2 - Cash flow

Question 1

Define cash

Answer 1

Cash is the money available immediately, if a business doesn’t have cash then it can’t it pay its bills

Question 2

Define cash flow

Answer 2

Cash flow is the flow of money into and out of the business

Question 3

Define net cash flow

Answer 3

The cash that comes into the business - inflow - outflow

Question 4

Define cash flow forecast

Answer 4

A prediction of what the likely inflows and outflows are going to be over a period of time

Question 5

Define cash flow statement

Answer 5

What the inflows and outflows are over a period of time

Question 6

Define opening balance

Answer 6

Balance at the start of the month

Question 7

Define closing balance

Answer 7

Balance at the end of the month

Question 8

Closing balance formula

Answer 8

Opening balance + net cash flow

Question 9

The closing balance is significant because

Answer 9

Becomes the opening balance of the next month

Question 10

Problems with poor cash flow (5)

Answer 10

Lack of working capital (money for day-to-day expenses)
Staff paid late
Unable to pay suppliers or get discounts for early payment
Creditors may not be paid on time
Creditors may not wait for payment

Question 11

Main reasons for poor cash flow (3)

Answer 11

Poor sales (low sales - lack of demand)
Overtrading (take too many orders)
Poor business decisions

Question 12

Improving cash flow (5)

Answer 12

Rescheduling payments 
Reducing cash outflow
Arrange a source of finance - overdraft
Finding new sources of finance 
Increasing cash inflow