Cash flow and cash flow statements and forecasts- pages 38-39

Question 1

Cash flow

Answer 1

Refers to the money coming into the enterprise each day- its inflows- and leaving the enterprise- its outflows

Question 2

What does cash flow depend on?

Answer 2

Depending on whether the enterprise has a greater inflows or outflow of cash over a period of time, it will have either a positive or negative liquidity

Question 3

What is the difference between outflows and inflows?

Answer 3

The amount of cash in the enterprise- this is its net cash flow

Question 4

Why is it important to that an enterprise knows how much cash is flowing in and out?

Answer 4

This is so the enterprise can ensure that it has sufficient money to cover purchases and other running costs such as wages and rent

Question 5

Example of cash inflows

Answer 5

• Revenue from sales of goods and services
• Owner’s capital
• Bank loans
• Sales of assets

Question 6

Example of cash outflows

Answer 6

• Raw materials for manufacture of goods
• Wages
• Heating, lighting and power
• Fuel for vans
• Rent
• Marketing
• Monthly loan repayments
• Insurance and business rates

Question 7

What does it mean if an enterprise has a positive liquidity?

Answer 7

If cash inflows over time are greater than cash outflows. It will have cash to pay for purchases

Question 8

What does it mean if an enterprise has a negative liquidity?

Answer 8

If its cash inflows over time are less than its cash outflows. It will not have sufficient cash to pay for purchases

Question 9

What do enterprise’s do with cash flow data?

Answer 9

They use this information to monitor and control cash flow

Question 10

Cash flow statement

Answer 10

This records the enterprise’s actual cash inflows and outflows over the previous 12 months. Looking at last year’s cash flow statement may be used to produce the enterprise’s cash flow forecast

Question 11

Cash flow forecast

Answer 11

This predicts the enterprise’s likely cash inflows (sales) and outflows (purchases) each month over a period of time

Question 12

What does the cash flow forecast allow?

Answer 12

It allows the enterprise to calculate net cash flow and ensure it has sufficient cash to cover its running costs