Download Cash Flow Exercises File

Cash flow exercises
If a business does not have enough money at the end of the month (i.e.
the number is a minus number) it will stop trading. Therefore the POINT
of a cash flow forecast is to try and predict if the business has enough
money left over each month to pay the bills for the next month.
If a business does not have enough money what can it do to the following
to increase the closing balance?
Cost/revenue
Sales
Action (explain how)
loans
Wages
Rent
Bills
Suppliers (stock
purchases)
Any other costs
1
The following cash flow is an estimated summary of six moths of trading
for Best Burgers, an outlet selling fast food in an outlet on a small town
high street.
March
£
Opening bank
Balance
Sales Receipts
Payments
Closing Bank
Balance
April
£
May
£
June
£
July
£
August
£
500
7000
6000
1500
7000
8000
500
7500
9000
-1000
8000
7500
-500
8000
7500
0
8500
6000
1500
500
-1000
-500
0
2500
Question 1
Opening balance + Sales Receipts – Payments = Closing Balance
Prove that this formula is correct by entering the correct figures for the
cash flow above in the boxes below
+
-
=
Question 2
a) Highlight (point out) any problems that Best Burgers has with its cash
flow
b) State 2 actions that the business can take to overcome this problem
2
Question 3
Paula of Paula’s Pullovers has predicted the following cash flows for her
business:
Dec
£
Opening bank
Balance
Sales Receipts
Payments
Closing Bank
Balance
Jan
£
Feb
£
Mar
£
Apr
£
May
£
1400
7000
8000
400
6000
8000
-1600
7000
7000
-1600
8000
7000
-600
6000
5000
400
7000
6000
400
-1600
-1600
-600
400
1400
a) Show the calculation which allows the whole of the cash flow
forecast to be checked for arithmetical accuracy by completing the
boxes below
+
-
=
£1,400
b) In which months will Paula be unable to make all her planned payments
if the cash flow is accurate?
c) Paula can overcome the problem shown up by the Cash Flow forecast
by making an arrangement with either its suppliers or the bank. Identify
these arrangements and explain in each case how they would overcome
the problem.
I. Suppliers
II. Bank
3
Paula’s Pullovers received a bank statement on 1 January 2005
Balance brought forward from previous statement
Total money in
Total money out
Your Balance at the close of business on 31 December 2004
£1,400
£6,000
£8,500
-£1,100
d) Will Paula have to pay bank charges? (explain why/why not)
e) The total money in does not match the forecast inflows (see the table
on page 3). Give one reason why
f) Total money out does not match the forecast outflows. Give one
reason why
g) A bank statement helps to monitor the accuracy of a cash flow
forecast. Why is it necessary for businesses to monitor the accuracy of
a cash flow forecast?
h) A computer spreadsheet was used to make the calculations for Paula’s
cash flow summary. If the opening bank balance was changed to £1,600
how many spreadsheet cells would need to be changed by the operator?
Explain your answer
Number of cells
Explanation
4
i) Give two advantages of using a spreadsheet to draw up cash flow
forecasts.
5