5.5 cash and cash flow
- Created by: hanfa
- Created on: 04-10-20 18:44
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- 5.5 cash and cash flow
- importance of cash in a business
- provides liquidity and enables a business to meet its short term debts and expenses.
- examples of expenses paid using cash are: material costs, wages, power and rent
- usefulness of cash flow forecasts
- dealing with a cash flow shortage when the business has a negative cash flow: they can arrange finance like an overdraft, or try to reduce spending/ lower output.
- anticipating periods of cash shortages: can show shortages of money so businesses can plan how to deal with it.
- providing targets: business may set cash targets so it can pay bills during negative cash flow periods.
- planning tool: help to know if business will have liquidity, if a good cash flow is seen , the business has more chances of getting investments.
- liquidity: the ability of a business to pay its short term debts
- cash flow forecast: a statement showing the expected flow of money into and out of a business over a period of time.
- positive cash flow; a forecast that there will be more cash coming into the business than going out.
- negative cash flow: a forecast that there will be more cash flowing out than coming in
- cash; notes and coins held in the business plus money it ha in its bank accounts
- closing balance: the amount of cash left at the end of the business at the end of the month, becomes opening balance for next month. (net cash flow+opening balance)
- net cash flow; total inflow- total outflow
- opening balance: the amount of cash available at the beginning of the month, closing balance of the previous month.
- profit: total revenue- total costs of production
- importance of cash in a business
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