Business Cash Flow and Profit
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Questions and Answers

What is the key difference between profit and cash flow?

  • Profit is the physical money a business has, while cash flow is the total revenue minus total costs.
  • Profit considers cash inflows and outflows, while cash flow considers costs incurred and revenue received.
  • Profit is calculated in the cash flow forecast, while cash flow is calculated in the income statement.
  • Profit considers costs incurred and revenue received, while cash flow considers cash inflows and outflows. (correct)

    • What is the main objective of a business in a situation where it cannot generate profits?

  • To minimize losses
  • To increase cash flow
  • To maximize profits
  • To break even (correct)

    • What is the margin of safety?

  • The amount a business sells in excess of its break-even point (correct)
  • The point at which the level of sales allows total costs to equal total revenue
  • The ratio of cash inflows to cash outflows
  • The difference between total revenue and total costs

    • What is the break-even point?

    <p>The level of sales where total costs equal total revenue</p> Signup and view all the answers

    What is the purpose of calculating profit in the income statement?

    <p>To evaluate the financial performance of a business</p> Signup and view all the answers

    What is the relationship between cash flow and business survival?

    <p>Cash flow is required for both short-term and long-term business survival</p> Signup and view all the answers

    What is the purpose of calculating the break-even point?

    <p>To identify the level of sales and unit price needed to cover total costs</p> Signup and view all the answers

    What is the formula to calculate the break-even output?

    <p>Break-even output = Fixed costs ÷ (Selling price − Variable costs)</p> Signup and view all the answers

    What is the margin of safety?

    <p>The difference between the actual output and the break-even output</p> Signup and view all the answers

    What is the assumption made when calculating break-even output?

    <p>All output is sold</p> Signup and view all the answers

    What is the primary goal of a business in the long run?

    <p>To make a profit</p> Signup and view all the answers

    What is one of the benefits of reducing costs for a business?

    <p>To pass cost savings on to customers via lower prices</p> Signup and view all the answers

    What does a business aim to achieve in the short term?

    <p>Break even</p> Signup and view all the answers

    What may a business do to increase revenue?

    <p>Introduce additional products or services</p> Signup and view all the answers

    Why is making a profit essential for a business?

    <p>To provide funds for investment and remuneration for owners</p> Signup and view all the answers

    What occurs when a business increases revenue while keeping costs under control?

    <p>The business will increase profits</p> Signup and view all the answers

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