Cash Flow
Overview
A builder in Lahore has three contracts signed, a full order book and a profit margin he is pleased with. On the twelfth of the month he cannot pay his bricklayers, because the developer who owes him 1.4 million rupees pays sixty days after each stage is certified and the certification is late. His bricklayers do not want to hear about certification. They want Friday's wages, and if they do not get them they will work for somebody else on Monday. He is profitable and he is in serious trouble, and those two facts are not in conflict.
This lesson is about the difference between those two facts. You will learn what cash flow is and why a business can be profitable and still fail, work through the four lines of a cash flow forecast until reading one is automatic, and practise the exact calculation the papers set: total outflows, net cash flow, closing balance. Then you will weigh the five solutions the specification names for a business in difficulty. One warning taken directly from a mark scheme: a cash flow difficulty does not mean the business is unprofitable, and an answer that says it does has its mark capped.
Objectives
- Importance of cash to businesses.
- Interpreting cash flow forecasts.
- Difference between cash and profit.
Mind map
This topic is mapped out so you can see how the ideas connect.
Open the mind map in the app
Lesson Note
Complete Note Available on the Green Bridge App
Get the Green Bridge CBT app on your phone or computer for the complete IGCSE library: past papers, mark schemes, mind maps, flashcards and audio lessons.
Lesson Evaluation
Congratulations on completing the lesson on Cash Flow. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- A business has an opening balance of 18,000, cash inflows of 52,000 and cash outflows of 61,000. What is its closing balance? A. 9,000 B. 27,000 C. 71,000 D. negative 9,000 Answer: A
- Which one of the following is a cash inflow but not revenue? A. Cash taken from customers in the shop B. Money received from a bank loan C. Payment from a credit customer for goods sold D. Rent received from a tenant Answer: B
- Which one of the following best describes a cash flow difficulty? A. The business is making a loss B. The business cannot pay its debts when they fall due C. The business has too much stock D. The business has borrowed too little Answer: B
- A business buys a delivery van for 300,000 in cash. What is the immediate effect? A. Profit falls by 300,000 and cash falls by 300,000 B. Cash falls by 300,000 but profit is reduced only by the amount the van wears out C. Neither cash nor profit changes D. Profit falls by 300,000 but cash is unchanged Answer: B
- Which one of the following would improve a business's cash flow in the shortest time? A. Applying for a government grant B. Issuing new shares C. Asking customers to pay on delivery instead of in 30 days D. Building a new factory Answer: C
Work through these questions in the app
Work through these questions in the app
Recommended Books
Practice Mock Questions
Want to practice mock questions on Cash Flow? Download the Green Bridge CBT app to access mock questions and full practice assessments for this topic.
Download The App On Google Playstore
Everything you need to excel in your exams
