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 (A)</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 (C)</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 (A)</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 (C)</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) (C)</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 (C)</p> Signup and view all the answers

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

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

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

<p>To make a profit (B)</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 (A)</p> Signup and view all the answers

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

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

What may a business do to increase revenue?

<p>Introduce additional products or services (B)</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 (C)</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 (C)</p> Signup and view all the answers

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