Unit 3.7 cash flow

Question 1

Bad debts

Answer 1

Bad debts exist when debtors are unable to pay their outstanding invoices (bills), which reduces the cash inflows of the vendor (the firm that has sold the products on credit).

Question 2

Cash

Answer 2

Cash is a current asset and represents the actual money a business has. It can exist in the form of cash in hand (cash held in the business) or cash at bank (cash held in a bank account).

Question 3

Cash flow

Answer 3

Cash flow refers to the transfer or movement of money into and out of an organization.

Question 4

cash flow forecast

Answer 4

A cash flow forecast is a financial tool used to show the expected movement of cash into and out of a business, for a given period of time.

Question 5

cash flow statement

Answer 5

A cash flow statement is the financial document that records the actual cash inflows and cash outflows of a business during a specified trading period, usually 12 months.

Question 6

Cash inflows

Answer 6

Cash inflows refer to the cash that comes into a business during a given time period, usually from sales revenue when customers pay for the products that they have purchased.

Question 7

Cash outflows

Answer 7

Cash outflows refer to cash that leaves a business during a given time period, such as when invoices or bills have to be paid.

Question 8

The closing balance

Answer 8

The closing balance refers the amount of cash left in a business at the end of each trading period, as shown in its cash flow forecast or statement. It is calculated using the formula: Closing balance = Opening balance + Net cash flow.

Question 9

Credit control

Answer 9

Credit control is the process of monitoring and managing debtors, such as ensuring only suitable customers are permitted trade credit and that customers do not exceed the agreed credit period.

Question 10

Net cash flow

Answer 10

Net cash flow refers to the difference between a firm’s cash inflows and cash outflows for a given time period, usually per month.

Question 10

The opening balance

Answer 10

The opening balance refers the value of cash in a business at the beginning of a trading period, as shown in its cash flow forecast or cash flow statement. It is equal to the closing balance in the previous month.

Question 11

Overtrading

Answer 11

Overtrading occurs when a business attempts to expand too quickly without the sufficient resources to do so, usually by accepting too many orders, thus harming its cash flow.

Question 12

Profit

Answer 12

Profit in its simplest form is the positive difference between a firm’s total sales revenue and its total costs of production for a given time period.

Question 13

The working capital cycle

Answer 13

The working capital cycle refers to the time between cash outflows for production costs and cash inflows from customers who pay upon receipt of their finished goods and services.

Question 14

strategies for dealing with lower cash outflows

Answer 14

• Preferential credit terms
• Seek alternative suppliers
• Better stock control
• Reduce unnecessary expenses
• Leasing or renting

Question 15

strategies for dealing with raise in cash inflows

Answer 15

• Tighter credit control
• Cash payments only
• change pricing policy
• broaden product portfolio

Question 16

strategies for dealing with additional finance

Answer 16

• Overdrafts
• Sale of fixed assets
• Debt factoring
• government assistance

Question 17

different catagories in a cashflow forecast

Answer 17

-opening balance
-inflows
(cash sales revenue)
(other sources of income)
-total cash inflows
-outflows
(stock costs)
(labour costs)
(other cash outflows)
- total cash outflows
- net cash flow
- closing balance