Cash Flow and Forecast review

What does a business use to pay costs?

• cash

• profit

• revenue

• loans

Answer explanation

A business uses cash to pay costs as it represents the actual money available for transactions.

When a business is unable to pay costs and debts, it is considered

• solvent

• insolvent

• profitable

• liquid

Answer explanation

When a business cannot pay its costs and debts, it is termed insolvent. This indicates financial distress, contrasting with solvent (able to pay debts) and profitable (earning more than spending).

What is cash flow?

• the movement of money in and out of a business over a period of time

• the amount of cash a business has at the end of a financial year

• the total revenue generated by a business

• the total profit a business earns after expenses

What are the two types of cash flow?

• products and services

• inflows and outflows

• positive and negative

• fixed and variable

What are cash inflows?

• cash coming into the business, e.g from owners or investors, bank loans, or revenue from sales

• cash leaving the business e.g. wages, raw materials, marketing and advertising, paying off loans

What are cash outflows?

• cash coming into the business, e.g from owners or investors, bank loans, or revenue from sales

• cash leaving the business e.g. wages, raw materials, marketing and advertising, paying off loans

What is the purpose of a cash flow forecast?

• To calculate profit or loss

• To predict how cash will flow through a business over time

• To identify periods where the business could have a cash flow problem

• To see if the business will break even

The net cash flow for a business is calculated by

• sales revenue - cost of goods sold
• sales revenue - total cash out

• total cash inflows - total cash outflows

• total cash in - cost of goods sold

Ideally, the net cash flow should be

• positive

• negative

Answer explanation

Ideally, the net cash flow should be positive, as this indicates that a business is generating more cash than it is spending, which is essential for sustainability and growth.

The opening balance is always the previous month's closing balance

• True

• False