Page 268 - Cambridge IGCSE Business Studies

Cambridge IGCSE Business Studies Section 5 Financial information and decisions

Revision checklist Exam-style questions

● The management of cash is important to 1 Charlotte and Amy are sisters and business partners.
a business because it must have enough In September 2012 they opened a greetings card shop,
cash coming in to cover the cash leaving the Cards4U. Although the business has been profi table in its
business. fi rst four months, the business does not always have enough
● Cash-flow forecasts can be used to show the money to pay its suppliers. Their younger sister, Lydia, has
timing of cash inflows and cash outflows a degree in business management. She has produced the
and identify any periods of time when the
cash-fl ow forecast, shown below, for the fi rst four months
business might have a cash shortage.
of 2013. She has told her sisters that this will help them to
● There are a number of ways a business manage their working capital more effectively. Charlotte does
can solve or reduce cash-flow problems
not see the need for cash management. ‘After all,’ she said,
including measures to increase cash inflows
‘we are making profi t!’
or delay cash outflows.
● All businesses need suff icient working
Jan Feb Mar Apr
capital to be able to pay short-term debts
and avoid liquidity problems. Cash inflow $ $ $ $
Cash sales 160 80 100 140
Credit sales 730 810 960 830
Total cash inflow 990 890 1060 970

Cash outflow
Cash purchases 520 800 340 915
266
Credit purchases 60 50 70 55
Shop rent 150 150
Other expenses 30 30 30 30
Total outflow 760 880 640 1150

Net cash flow 30 10 A (−180)
Opening balance (−70) (−40) (−30) 390
Closing balance (−40) (−30) 390 B

Forecast cash flow January–April 2013

a What is meant by ‘working capital’? [2]
b Calculate the missing fi gures shown as A and B in the
cash-fl ow forecast. [2]
c Identify and explain why the owners of Cards4U
should be concerned about the results shown in
this cash-fl ow forecast. [4]
d Identify and explain two ways the owners of Cards4U
could improve the cash fl ow of their business. [6]
e Do you agree with Charlotte’s view that there is
no need for cash management? Justify your answer. [6]