Podcast
Questions and Answers
Why is maintaining a healthy cash balance crucial for a business?
Why is maintaining a healthy cash balance crucial for a business?
- To minimize long-term debts undertaken by the company.
- To ensure the business has enough funds to cover its short-term obligations. (correct)
- To decrease the perceived value of the company's financial assets.
- To increase the overall profit margin of the business.
What is the most direct consequence a business might face if it cannot pay its suppliers on time?
What is the most direct consequence a business might face if it cannot pay its suppliers on time?
- The business' assets are guaranteed to increase in value.
- The business might receive discounts for late payments.
- The supplier might refuse to provide goods or services in the future. (correct)
- The business could face increasing demand due to increased availability of their supplies.
How can a detailed cash flow forecast help a business avoid insolvency?
How can a detailed cash flow forecast help a business avoid insolvency?
- By guaranteeing that all sales forecasts will be met.
- By eliminating the need to pay suppliers.
- By reducing the amount of taxes the business needs to pay.
- By identifying upcoming shortfalls and allowing time to arrange additional financing. (correct)
Which statement best describes the relationship between cash flow and profit?
Which statement best describes the relationship between cash flow and profit?
When is a business considered insolvent?
When is a business considered insolvent?
What is the primary purpose of generating a cash-flow forecast?
What is the primary purpose of generating a cash-flow forecast?
If a business's invoices are not paid on time, what is the likely impact on their cash flow?
If a business's invoices are not paid on time, what is the likely impact on their cash flow?
What should a company do if its cash flow forecast indicates a significant upcoming deficit?
What should a company do if its cash flow forecast indicates a significant upcoming deficit?
Which of the following is an example of a cash inflow?
Which of the following is an example of a cash inflow?
What is the main difference between an opening and a closing cash balance in cash flow forecasting?
What is the main difference between an opening and a closing cash balance in cash flow forecasting?
Which of these options is likely to reduce cash outflows?
Which of these options is likely to reduce cash outflows?
Why is 'cash king' in business?
Why is 'cash king' in business?
What could happen if you don't pay employees?
What could happen if you don't pay employees?
How can you tell if you are insolvent?
How can you tell if you are insolvent?
What is cash?
What is cash?
What action contributes to a business effectively managing its cash outflows?
What action contributes to a business effectively managing its cash outflows?
Which of the following would be classed as 'overhead'?
Which of the following would be classed as 'overhead'?
What is the formula for profit?
What is the formula for profit?
Is the following statement true or false? Cash flow is a budget for cash inflows and cash outflows in a business.
Is the following statement true or false? Cash flow is a budget for cash inflows and cash outflows in a business.
Which is the correct definition of cash flow?
Which is the correct definition of cash flow?
If a business had revenue from tickets, sales from stalls, and sales revenue from car parking. Would these be inflows or outflows?
If a business had revenue from tickets, sales from stalls, and sales revenue from car parking. Would these be inflows or outflows?
If a business has costs of music bands, cost of hiring the site, cost of security staff and cost of accountants, are these inflows or outflows for the business?
If a business has costs of music bands, cost of hiring the site, cost of security staff and cost of accountants, are these inflows or outflows for the business?
Fill in the blanks: Inflows = money coming ____ a business also known as ____ .
Fill in the blanks: Inflows = money coming ____ a business also known as ____ .
If a businesss cash balance brought forward is '0', and income sale of T-shirts is 6000. What is the total?
If a businesss cash balance brought forward is '0', and income sale of T-shirts is 6000. What is the total?
How can a business improve their cash shortfall?
How can a business improve their cash shortfall?
What is the formula for net cash flow
What is the formula for net cash flow
If a company is able to accurately forecast cash flow, then:
If a company is able to accurately forecast cash flow, then:
Choose the best answer, what can influence cash inflows? (Select all that apply)
Choose the best answer, what can influence cash inflows? (Select all that apply)
What is a disadvantage of neglecting cash flow?
What is a disadvantage of neglecting cash flow?
What does net cash flow tell you?
What does net cash flow tell you?
What is trade credit?
What is trade credit?
Which of the following refers to the money required by a business to operate on a daily basis?
Which of the following refers to the money required by a business to operate on a daily basis?
Cash flow is to business in order to:
Cash flow is to business in order to:
Consider a festival that only accepts cash for payments. Which of the following impacts the cash outflows?
Consider a festival that only accepts cash for payments. Which of the following impacts the cash outflows?
What is working activity?
What is working activity?
Why do external individuals care about cash flow?
Why do external individuals care about cash flow?
When a business increases its prices and reduces its costs it is trying to improve cash flow by increasing:
When a business increases its prices and reduces its costs it is trying to improve cash flow by increasing:
Which is an intangible asset for a service station?
Which is an intangible asset for a service station?
Which of the following can be the source of a company suffering with consistent cash flow problems?
Which of the following can be the source of a company suffering with consistent cash flow problems?
What can reduce a business cash inflow?
What can reduce a business cash inflow?
Flashcards
What is cash?
What is cash?
Notes, coins, or money in the bank which the business can access.
Why is cash important?
Why is cash important?
Businesses use cash to pay suppliers, overheads, and employees.
Who are suppliers?
Who are suppliers?
Businesses which supply a company with stock or other supplies.
What are overheads?
What are overheads?
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What is insolvency?
What is insolvency?
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What is profit?
What is profit?
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What is cash?
What is cash?
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Cash flow forecast
Cash flow forecast
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Definition of cash flow
Definition of cash flow
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What are cash inflows?
What are cash inflows?
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Cash outflows
Cash outflows
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Net cash flow
Net cash flow
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What is opening balance?
What is opening balance?
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What is closing balance?
What is closing balance?
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Study Notes
- The lesson covers cash and cash flow within the Edexcel GCSE Business (9-1) curriculum, first taught from 2017.
- The lesson took place on February 3rd, 2023
- The ability to recall the importance of cash to a business and define insolvency
- Participants will learn to calculate cash flow forecasts, considering cash inflows and outflows.
- The ability to understand and compute net cash flow, including opening and closing balances.
- Cash is notes, coins, or money in a bank account that a business can access immediately.
- Cash is critical for paying suppliers, overheads, and employees.
- It helps prevent business insolvency and differs from profit.
Importance of Cash
- Paying suppliers ensures a steady supply of stock and materials. If suppliers are not be paid on time, they might refuse to supply the company in the future.
- Overheads are business costs not directly related to production like administration, accounting, business insurance, utilities (gas/electric/water), and advertising.
- Paying employees is crucial; otherwise, employees may leave or take legal action.
- Maintaining cash prevents insolvency.
- "Cash is king" means having enough cash is vitally important
- Businesses should ensure invoices get paid promptly to maintain sufficient cash.
- A company that cannot pay its bills and raise finance in time may face closure.
- Insolvency happens when a business cannot pay its debts or staff wages due to lack of cash.
Cash vs Profit
- Profit is the remaining revenue after deducting all costs (Total Revenue - Total Costs).
- Cash is the money a business can use to pay bills, regardless of when it's earned or spent.
Cash Flow Forecast
- A cash flow forecast is a prediction of cash inflows and outflows
- Cash flow shows the connection between money coming into a business (inflows) and money leaving the business (outflows).
- Inflows are money coming into the business, also known as receipts (ex: sales revenue from tickets/stall rents/car parking for festivals)
- Outflows are money leaving the business (ex: Costs of music bands, site hire, security, administration, and accountants for festivals)
- Cash flow helps budget day-to-day operations and shows potential cash shortages.
- A cash flow forecast allows businesses to plan short-term borrowing to cover shortfalls.
Cash Flow Forecast Uses
- Cash flow is running day-to-day activities of a business
- Allows businesses to foresee potential cash shortfalls making them unable to pay their bills
- Cash flow forecasts, helps businesses organise short-term cash borrowing to cover the shortfall
- Identify how the business can improve their cash shortfall.
Cash Flow Calculation (Net Flow)
- Net cash flow is the difference between cash inflow and cash outflow.
- Opening balance is the cash available at the beginning of a period.
- Closing balance is the cash available at the end of a period, which then gets carried over as an opening balance for the following period.
Improving Cash Shortfalls:
- Reduce waste and economize
- Cut costs
- Arrange an overdraft
- Reduce credit given to customers buying (immediate)
- Discount and promote to encourage more sales
- Use a cheaper supplier
- Organise trade credit with the supplier
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Description
Explore cash and cash flow within the Edexcel GCSE Business (9-1) curriculum. Learn to calculate cash flow forecasts, considering inflows, outflows, and net cash flow. Understand the importance of cash for business operations and solvency.
