EDEXCEL GCSE BUSINESS · PAPER 1
Exam Practice: Cash and Cash Flow Forecasting
Cash and cash flow forecasting · Putting a business idea into practice · Lesson 4 of 5 · 9 marks · 25 minutes
Name Date
Answer all questions. Show your working in calculations.
Question 1 DEFINE [1 mark]
Define the term 'net cash flow'.
Question 2 STATE [1 mark]
State one cash outflow for a small business.
Question 3 CALCULATE [2 marks]
A business has an opening balance of £1,200. In March its cash inflows are £4,500 and its cash outflows are £5,100. Calculate its closing balance for March. You are advised to show your working.
Question 4 OUTLINE [2 marks]
Outline one benefit to a small business of producing a cash-flow forecast.
Question 5 EXPLAIN [3 marks]
Explain one reason why a business might be profitable but still run out of cash.
Answers
Check your answer only once you have written one.
Question 1 [1 mark]
The difference between a business's cash inflows and its cash outflows over a period.
▸ Cash inflows minus cash outflows 1 mark
Question 2 [1 mark]
Wages.
▸ Any valid outflow, e.g. wages; rent; stock / raw materials; utility bills; loan repayments 1 mark
Question 3 [2 marks]
Net cash flow = £4,500 - £5,100 = (£600). Closing balance = £1,200 + (£600) = £600
▸ Correct method: opening balance + (inflows - outflows) 1 mark
▸ Correct answer: £600 1 mark (award 2 marks for the correct answer with no working)
Question 4 [2 marks]
It can show in advance when the business might run short of cash (1), so the owner can arrange an overdraft before the shortage happens (1).
▸ A benefit identified, e.g. predicts shortages / helps get a loan / helps plan spending 1 mark
▸ Developed: how this helps the business 1 mark
Question 5 [3 marks]
Its customers may pay on credit (1). The sale counts towards profit when it is made, but the cash does not arrive until the customer pays, perhaps 60 days later (1). Meanwhile the business must still pay its suppliers and staff, so it can run out of cash even though it is making a profit (1).
▸ A reason identified, e.g. customers paying late / buying stock in advance / large purchases 1 mark
▸ First linked point of explanation 1 mark
▸ Second linked point of explanation 1 mark