Cash & Cash Flow Flashcards
All 17 cards in this deck
What is cash?
Physical money in notes and coins, or money available in the business's bank accounts.
What is cash flow?
The movement of money into and out of a business's bank accounts.
Why does a business need cash to pay its suppliers?
Paying on time keeps suppliers' trust — otherwise they may refuse to supply goods on credit.
Why does a business need cash to pay its employees?
Without the correct pay, employees may leave, increasing labour turnover.
Why does a business need cash to pay its overheads?
It must meet running costs such as rent; if it cannot, the business could close down.
What is insolvency?
Business failure due to unpaid debts — the business runs out of cash and can no longer pay its bills.
Why can a business be profitable but still run out of cash?
Customers may not have paid yet while bills are due now, so cash leaves faster than it comes in.
Name two ways a business can get out of negative cash flow.
Any two of: arrange an overdraft; cut or control costs; agree better credit terms with customers or suppliers.
What is a cash flow forecast?
A prediction of the future flow of cash in and out of a business's bank accounts, usually for a 12-month period.
Give two examples of a cash inflow.
Receipts from sales and a bank loan (also capital from an owner).
Give three examples of a cash outflow.
Raw materials, wages and insurance (also rent).
What is the formula for net cash flow?
Net cash flow = cash inflows − cash outflows.
What is the formula for the closing balance?
Closing balance = opening balance + net cash flow.
How is the opening balance of a month found in a cash flow forecast?
It is the closing balance of the previous month.
True or false? A business with many customers can still have negative cash flow.
True. If customers do not pay on time, more cash may go out than comes in.
True or false? Net cash flow for a month can be a negative figure.
True. If cash outflows are greater than cash inflows, net cash flow is negative.
What is the difference between cash and profit?
Cash is the money a business has available right now to pay its bills. Profit is what is left when total costs are taken away from total revenue over a period, whether or not that money has been received yet.