Why is cash important to a business?
Show model answer
A. It allows a business to pay its employees and suppliers on time. This is the primary importance of cash, as it ensures the day-to-day operations of the business can continue. The other options are not directly related to the immediate importance of cash.
What is a cash-flow forecast?
Show model answer
B. An estimate of a business's future cash inflows and outflows. A cash-flow forecast is a tool used to predict the future cash position of a business, helping it to plan and avoid cash shortages.
Which of the following is an example of a cash inflow?
Show model answer
C. Receipt of money from customers. Cash inflows are sources of cash for the business, such as sales revenue. The other options are examples of cash outflows.
What is working capital?
Show model answer
B. The difference between a business's current assets and current liabilities. Working capital is a measure of a business's liquidity and its ability to meet its short-term obligations.
Which of the following could help a business to overcome a short-term cash-flow problem?
Show model answer
D. Asking customers to pay more quickly. This would speed up the inflow of cash, helping to alleviate a short-term cash-flow problem. The other options would not have an immediate impact on cash flow.
What is the main purpose of a cash-flow forecast?
Show model answer
C. To ensure a business has enough cash to meet its obligations. The primary purpose of a cash-flow forecast is to help a business plan and ensure it has sufficient cash to cover its short-term needs.
Which of the following is an example of a fixed cost?
Show model answer
C. The rent of a factory. Fixed costs are costs that do not change with the level of output, such as rent, salaries, and insurance. The other options are examples of variable costs.
What is the break-even point?
Show model answer
B. The point at which a business's total revenue equals its total costs. The break-even point is the level of sales at which a business covers all its costs and starts to make a profit.
Which of the following is an example of a current asset?
Show model answer
C. Inventory held for sale. Current assets are assets that can be converted into cash within one year, such as inventory, accounts receivable, and cash. The other options are examples of non-current assets or liabilities.
What is the margin of safety?
Show model answer
B. The amount by which sales can fall before a business starts to make a loss. The margin of safety is the difference between the break-even point and the actual level of sales, showing how much sales can decrease before the business starts to make a loss.
Which of the following is an example of a cash outflow?
Show model answer
B. Payment of wages. Cash outflows are uses of cash by the business, such as payments to suppliers, employees, and lenders. The other options are examples of cash inflows.
What is the main difference between a cash-flow forecast and an income statement?
Show model answer
A. A cash-flow forecast predicts future cash flows, while an income statement records past profits. This is the primary difference between the two financial statements. A cash-flow forecast is a predictive tool, while an income statement is a historical record.
Which of the following could help a business to improve its working capital position?
Show model answer
B. Negotiating longer payment terms with suppliers. This would delay the outflow of cash, improving the business's working capital position. The other options would have a negative impact on working capital.
What is the main limitation of break-even analysis?
Show model answer
B. It assumes that sales price and variable costs remain constant. This is a significant limitation of break-even analysis, as in reality, these factors can change. The other options are not accurate descriptions of the limitations of break-even analysis.
Which of the following is an example of a current liability?
Show model answer
B. Accounts payable to suppliers. Current liabilities are obligations that are due to be paid within one year, such as accounts payable, short-term loans, and taxes payable. The other options are examples of non-current assets or liabilities.