Cash Flow (AQA GCSE Business)

Exam Questions

53 mins17 questions
11 mark

Which of the following is an example of a cash inflow for a business?

  • Bank loan repayment

  • Raw materials costs

  • Rent received

  • Wages

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21 mark

Which of the following describes profit?

  • The full range of money flowing in and out of a business during a specific period of time

  • The point at which total costs are equal to total revenue

  • Where total costs exceed all of the revenue streams of a business

  • The difference between revenue generated and total business costs during a specific period of time

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31 mark

State one use of cash in a business.

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41 mark

Which of the following is a description of liquidation?

  • Where the owner of a business is held personally responsible for debts incurred

  • The legal process of dissolving a company

  • Making a loss as a result of poor sales

  • Selling shares for the first time on the stock exchange

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52 marks

State two common elements of a cash flow forecast

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61 mark

State the formula used to calculate the closing balance in a cash flow forecast.

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71 mark

State one way a business could solve a short-term cash flow problem.

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14 marks

Case Study

Sonya has been running Bambino Parties for two years. Last year, she made a profit of £8,000 and now wants to increase the number of parties by 20%.

A friend recently started to work for Sonya on a part time basis. She designs backgrounds for parties and these have proved very popular. Her friend has asked if she can become a partner in Bambino Parties. She is willing to invest £3,000 into the business in return for 50% of the profits and will work full time to help expand the business.

When Sonya takes a booking for a party, she asks for a 10% deposit and then receives the rest of the agreed price after the party. Her suppliers, people who provide venues, catering, and birthday cakes, expect to be paid in advance. She is worried about the effect this will have on cash flow.

Sonya has produced a cash flow forecast.

Figure 2

June
£

July
£

August
£

September
£

Total Income

5,000

11,100

9,200

11,600

Total Expenses

8,100

7,100

9,800

7,900

Balance brought forward

(1,300)

(4,400)

(400)

(1,000)

Balance carried forward

(4,400)

(400)

(1,000)

2,700

Explain one way Sonya could improve her cash flow problems.

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23 marks

Case Study

Ellie Swift is the owner of Swiftly Services. She always dreamed of running her own business, as she wanted to be her own boss and make her own decisions. Swiftly Services offers a wide range of home services, from unblocking sinks to painting and decorating.

Ellie’s parents agreed to lend her the money she needed to start up her business, interest free. They had an informal agreement that she would pay them back what she could afford each month.

Table 2 Cash Flow Forecast for Swiftly Services

February

March

April

May

£

£

£

£

Cash inflows

2 000

2 300

2 800

3 300

Cash outflows

20 300

800

1 100

1 450

Opening balance

15 000

(3 300)

(1 800)

(100)

Closing balance

(3 300)

(1 800)

(100)

After running Swiftly Services from February to May, Ellie was pleased to see that her cash flow forecast had been accurate. However, Ellie’s parents have unexpectedly asked her to repay £1000 a month, starting in June, as they are moving to a new house and need the money quickly. Ellie’s parents are now concerned about how soon they will get their money back. They have told Ellie that she should expand her portfolio of services and provide gardening services over the summer months. Gardening services would include mowing lawns, planting and weeding. They have forecast that this could bring in an extra £1000 cash inflow per month. However, to start offering these services, Ellie would need to spend £2000 on gardening equipment. This would increase her cash outflows. She would also need to hire someone to help her do the extra work.

Using Table 2, calculate the closing balance for May on the cash flow forecast.

State the formula for the closing balance and show your workings.

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32 marks

Extract from a cash flow forecast

July
£

August

£

Total cash inflows

3 420

3 200

Total cash outflows

4 620

3 575

Net cash flow

(1 200)

(375)

Opening balance

2 000

Closing balance

Calculate the closing balance for August.

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42 marks

Explain one use of cash in a business.

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52 marks

Explain one benefit of using trade credit to improve cash flow.

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63 marks

Extract from a cash flow forecast

March
£

April

£

Total cash inflows

6,170

7,450

Total cash outflows

5,980

8,040

Net cash flow

190

Opening balance

900

Closing balance

Calculate the closing balance for April.

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72 marks

Explain the difference between cash flow and profit.

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19 marks

Case Study

Ellie Swift is the owner of Swiftly Services. She always dreamed of running her own business as she wanted to be her own boss and make her own decisions. Swiftly Services offers a wide range of home services, from unblocking sinks to painting and decorating.

Ellie’s parents agreed to lend her the money she needed to start up her business interest free. They had an informal agreement that she would pay them back what she could afford each month.

Table 2 Cash Flow Forecast for Swiftly Services

February

March

April

May

£

£

£

£

Cash inflows

2,000

2,300

2,800

3,300

Cash outflows

20,300

800

1,100

1,450

Opening balance

15,000

(3,300)

(1,800)

(100)

Closing balance

(3,300)

(1,800)

(100)

1,750

After running Swiftly Services from February to May, Ellie was pleased to see that her cash flow forecast had been accurate. However, Ellie’s parents have unexpectedly asked her to repay £1000 a month, starting in June, as they are moving to a new house and need the money quickly. Ellie’s parents are now concerned about how soon they will get their money back. They have told Ellie that she should expand her portfolio of services and provide gardening services over the summer months. Gardening services would include mowing lawns, planting and weeding. They have forecast that this could bring in an extra £1000 cash inflow per month. However, to start offering these services, Ellie would need to spend £2000 on gardening equipment. This would increase her cash outflows. She would also need to hire someone to help her do the extra work.

Ellie is considering offering gardening services in June, July and August.

Recommend whether offering gardening services will improve the long-term future cash flow at Swiftly Services. Give reasons for your recommendation

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26 marks

Case Study

Sonya has been running Bambino Parties for two years. Last year, she made a profit of £8,000 and now wants to increase the number of parties by 20%.

A friend recently started to work for Sonya on a part time basis. She designs backgrounds for parties and these have proved very popular. Her friend has asked if she can become a partner in Bambino Parties. She is willing to invest £3,000 into the business in return for 50% of the profits and will work full time to help expand the business.

When Sonya takes a booking for a party, she asks for a 10% deposit and then receives the rest of the agreed price after the party. Her suppliers, people who provide venues, catering, and birthday cakes, expect to be paid in advance. She is worried about the effect this will have on cash flow.

Sonya has produced a cash flow forecast.

Figure 2

June
£

July
£

August
£

September
£

Total Income

5,000

11,100

9,200

11,600

Total Expenses

8,100

7,100

9,800

7,900

Balance brought forward

(1,300)

(4,400)

(400)

(1,000)

Balance carried forward

(4,400)

(400)

(1,000)

2,700

Analyse one impact on Bambino Parties' cash flow situation of allowing customers to pay for parties after the event.

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312 marks

Case Study

Devine Jewellery (DJ) plc is an international business that sells a range of luxury jewellery items such as bracelets, necklaces and rings. The business was started by British jewellery designer Dev Anand who developed a unique selling point (USP) of jewellery that can be personalised with a message or initials. This USP has attracted customers from all over the world. All DJ products are crafted from high quality gold and gemstones. This has enabled DJ to create an exclusive brand image that has attracted wealthy customers. DJ makes a healthy profit but, at times, it has required the use of an overdraft to ensure all important bills are paid on time.

DJ currently only sells its jewellery through the 60 stores it owns. This has allowed DJ to maintain its brand image and the high level of service customers expect. To increase sales, DJ has offered credit to customers spending over £2,000 so they can buy jewellery now and pay later. Many competitors also offer credit. This has enabled customers to purchase expensive pieces of jewellery and pay for them in ten equal instalments. Not all customers have been able to afford the monthly repayments and DJ has spent time and money trying to recover the debt.

Dev is concerned about the company's cash flow position. Recommend if DJ's cash flow position can be improved by:

  • selling and leasing back business assets, including factory equipment and company vehicles

  • withdrawing the credit facility offered on purchases over £2,000

Analyse the effect of each of these two options on DJ's cash flow position

Evaluate which of these two options will have the most positive impact on DJ's cash flow position

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