loe Flashcards
(26 cards)
What is a cash flow forecast?
A document that estimates the money flowing in and out of a business over a given period.
Why is a cash flow forecast important?
Helps businesses identify cash shortages and surpluses.
Ensures timely payments to suppliers and employees.
Useful for attracting funding from investors and banks.
What are inflows in a cash flow forecast?
Money coming into the business, such as cash sales, credit sales, loans, capital introduced, sale of assets, and bank interest received.
What are outflows in a cash flow forecast?
Money leaving the business, such as cash purchases, credit purchases, rent, rates, salaries, wages, utilities, and VAT.
What is the opening balance in a cash flow forecast?
The amount of money available at the start of the month.
How is the closing balance calculated?
Total cash available minus total outflows.
How can a cash flow forecast be used for planning?
Helps businesses plan for surplus or deficit months.
Identifies major inflows and outflows for better budgeting.
How does monitoring improve cash flow management?
Tracks the accuracy of forecasts against actual cash flow.
How does a cash flow forecast help with control?
Allows businesses to address cash flow issues before they worsen.
How does a cash flow forecast assist in target setting?
Sets financial goals based on inflow and outflow patterns.
What are common solutions to cash flow problems?
Arranging overdrafts.
Negotiating payment terms with creditors.
Postponing capital expenditures.
What is break-even?
The point where total revenue equals total costs, resulting in no profit or loss.
What are fixed costs?
Costs that do not change with production levels, such as rent and salaries.
What are variable costs?
Costs that vary with production levels, such as raw materials.
What are semi-variable costs?
Costs with both fixed and variable components, like phone bills.
How is total cost calculated?
Fixed costs + Variable costs.
How is total revenue calculated?
Selling price per unit × Quantity sold.
: How is contribution per unit calculated?
Selling price per unit - Variable cost per unit.
How is the break-even point calculated?
Fixed costs ÷ Contribution per unit.
What is the margin of safety?
Actual sales - Break-even sales.
How is profit calculated?
(Contribution per unit × Margin of safety) - Fixed costs
What does a break-even chart show?
Fixed costs, total costs, total revenue, and the break-even point.
How is break-even analysis used for planning?
Helps businesses plan budgets and pricing strategies.
How does break-even analysis aid monitoring?
Tracks progress toward breaking even and highlights revenue-cost changes.
