Chapter 5.2 Flashcards
(39 cards)
What is cash?
It is the most liquid asset, available to spend immediately.
Why is cash important for businesses?
To pay debts, avoid cash problems, and plan finances.
What is a cash flow forecast?
A plan showing expected inflows and outflows of cash.
Give 3 examples of cash inflows.
Cash sales, loans, sale of assets.
Give 3 examples of cash outflows.
Wages, buying materials, loan repayments.
Is profit the same as cash?
No. Cash is available now. Profit may come later.
What happens if a business runs out of cash?
It becomes insolvent (bankrupt).
What is a cash surplus?
When inflows are more than outflows.
What is a cash deficit?
When outflows are more than inflows.
What is the formula for net cash flow?
Cash inflows – Cash outflows.
What is the closing balance?
Net cash flow + Opening balance.
What is the opening balance of a month?
The closing balance of the previous month.
Name 2 ways to improve cash flow quickly.
Ask customers to pay faster, or take a bank loan.
What is working capital?
Money available for day-to-day operations.
Formula for working capital?
Current assets – Current liabilities.
What is a current asset?
Things like cash, inventory, or money owed to you.
What is a current liability?
Debts that must be paid soon (like bills and loans).
What does positive working capital mean?
Assets are more than debts – good for business.
What does negative working capital mean?
Debts are more than assets – bad for business.
Name one reason cash flow management is important.
To pay suppliers and avoid business failure.
What does a positive working capital mean?
Current assets are greater than current liabilities.
What does a negative working capital mean?
Current liabilities are greater than current assets.
Why is positive working capital important?
It helps the business pay day-to-day expenses.
Why is negative working capital bad?
The business may not be able to pay its short-term debts.
