Cash flow study guide

Cash flow is the total amount of money that moves into and out of a business during a specific period, indicating its liquidity position.

A prediction of the timing and amount of cash inflows and outflows over a future period.

Any money received by the business, such as sales revenue, loans, or investment income.

Cash flow is the movement of money into and out of a business over a specific period.

An overdraft is a credit facility that allows a business to withdraw more money than is available in its current account, up to an agreed limit.

Exam practice

• Which of the following is a likely consequence of a persistent cash flow problem for an independent retailer?
• Explain how a cash flow problem can affect a small manufacturer’s ability to pay suppliers.
• Which of the following best explains why a business constructs a cash flow forecast?
• Describe the process of creating a cash flow forecast for a small manufacturer, including key assumptions.
• In a cash flow forecast, if the opening balance is £5,000, cash inflows are £12,000, and cash outflows are £9,000, what is the net cash flow for the period?
• A small manufacturer has an opening balance of £4,500. During the month it records cash inflows of £10,200 and cash outflows of £8,700. What is the closing balance for the month?
• Which statement best describes the difference between cash and profit?
• Explain why a small online retailer might report a profit of £5,000 for the year but have a cash balance of only £1,000 at year‑end.
• Which of the following is NOT a direct method to improve a business's cash flow?
• A small online service business has a projected cash outflow of £12,000 next month but only £8,000 in cash inflow. Evaluate the most suitable solution(s) to address this shortfall.