Cash-flow forecasting - Worksheets, Questions and Revision

13 original exam-style questions - 5 pages of questions with a full mark scheme - free printable PDF.

Download PDF Jump to mark scheme (page 6)Cash-flow forecasting revision guide

This topic is chapter 4 of GCSE Business: Finance Practice Book.

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3.4 Cash-flow forecasting

AQA 8132 · Calculator allowed · about 60 minutes

Total Marks

Name: _______________________________ Date: ____ / ____ / ______

Answer ALL questions in the spaces provided. Show your working for every calculation: method marks are available even if your final answer is wrong. Bright Spark Electricals, used throughout this pack, is a fictional business.

State two typical cash inflows for a retail business like Bright Spark Electricals.

(Total for Question 1 is 2 marks)

Which one of the following is a cash OUTFLOW for Bright Spark Electricals?

A) A £2,000 bank loan received from Bright Spark Electricals' bank
B) Money paid in by Kofi as extra capital
C) Cash paid to a supplier for new stock of electrical goods
D) Cash received from a cash sale to a customer

(Total for Question 2 is 1 mark)

State two reasons why a business prepares a cash-flow forecast.

(Total for Question 3 is 2 marks)

Other than negotiating supplier payment terms, state two other methods Bright Spark Electricals could use to improve its cash-flow position.

(Total for Question 4 is 2 marks)

Which one of the following is true of cash flow but NOT necessarily true of profit?

A) It is calculated over a trading period such as a year
B) It only counts money that has actually been received or paid out
C) It can include sales made on credit that have not yet been paid for
D) It is shown on a statement of comprehensive income

(Total for Question 5 is 1 mark)

Bright Spark Electricals' statement of financial position shows current assets (cash, inventory and trade receivables) of £9,400 and current liabilities (trade payables and an overdraft) of £5,600.

(a)Calculate Bright Spark Electricals' working capital. Show your working.(2)

(b)State what a positive working capital figure, as calculated in part a, tells us about Bright Spark Electricals' short-term liquidity.(2)

(Total for Question 6 is 4 marks)

State two consequences to Bright Spark Electricals of running out of cash, even if the business is profitable overall.

(Total for Question 7 is 2 marks)

Bright Spark Electricals' April closing balance is £2,700 (question 10). In May it forecasts cash inflows of £8,900 and cash outflows of £7,650.
Calculate Bright Spark Electricals' net cash flow and closing balance for May. Show your working.

(Total for Question 8 is 4 marks)

Bright Spark Electricals, a fictional electrical retailer, forecasts the following cash inflows and outflows for its first four months of trading.

Month	Opening balance (pounds)	Total cash inflows (pounds)	Total cash outflows (pounds)	Net cash flow (pounds)	Closing balance (pounds)
January	1,500	7,000	6,300	(a)	(b)
February	(c)	6,200	7,000	(d)	(e)
March	(f)	8,500	6,900	(g)	(h)

Calculate the value of each missing figure, (a) to (h). Show your working.

(a)Calculate the missing net cash flow for January.(1)

(b)Calculate the missing closing balance for January.(1)

(c)Calculate the missing opening balance for February.(1)

(d)Calculate the missing net cash flow for February.(1)

(e)Calculate the missing closing balance for February.(1)

(f)Calculate the missing opening balance for March.(1)

(g)Calculate the missing net cash flow for March.(1)

(h)Calculate the missing closing balance for March.(1)

(Total for Question 9 is 8 marks)

Bright Spark Electricals' April opening balance is £3,000 (March's closing balance, question 9h). In April it forecasts cash inflows of £7,800 and cash outflows of £8,100.
Calculate Bright Spark Electricals' closing balance for April. Show your working.

(Total for Question 10 is 3 marks)

Bright Spark Electricals wants to maintain a minimum closing cash balance of £2,000 each month as a safety buffer. Using your answers to question 9, state which month's closing balance falls below this £2,000 target, and calculate by how much. Show your working.

(Total for Question 11 is 3 marks)

Bright Spark Electricals' cash-flow forecast (questions 9-10) shows its closing balance dips below its £2,000 target in February, falling to £1,400, a shortfall of £600 (question 11), even though the business has positive working capital of £3,800 (question 6a) and a positive net cash flow in three of the four months.
Recommend what Kofi should do about the February shortfall. Justify your answer using the figures given in this pack.

(Total for Question 12 is 9 marks)

Bright Spark Electricals is considering offering credit customers a 2% discount for paying their invoice within 7 days instead of the usual 30-day credit terms. Analyse the likely impact of this change on Bright Spark Electricals' cash-flow forecast.

(Total for Question 13 is 6 marks)

Mark scheme · 3.4 Cash-flow forecasting

Question 1

B1 cash sales to customers
B1 receipts from credit customers, the owner's own capital introduced, or a loan received
Answer: Any two, e.g. cash sales; receipts from credit customers; owner's capital introduced; a loan received.

Question 2

B1 C cao
Answer: C

Question 3

B1 to plan ahead and identify months where the business might run short of cash
B1 to support a loan/finance application, e.g. to show a bank the business can manage its cash
Answer: Any two, e.g. to plan ahead/spot a future cash shortage; to support a loan or finance application.

Question 4

B1 offer customers a discount for early payment, or chase up overdue customer payments
B1 arrange a short-term bank overdraft or loan to cover the shortfall
Answer: Any two, e.g. offer early-payment discounts/chase late payers; arrange a short-term overdraft or loan.

Question 5

B1 B cao
Answer: B

Question 6

(a) M1 9,400 - 5,600 seen
(a) A1 £3,800 cao
(a) Answer: £3,800.
(b) B1 the business has enough short-term (current) assets to cover its short-term (current) liabilities/debts
(b) B1 this means it should, in the short term, be able to pay its bills as they fall due (good short-term liquidity)
(b) Answer: Current assets exceed current liabilities, so the business should be able to pay its short-term bills as they fall due.

Question 7

B1 it may be unable to pay suppliers, staff or bills on time, damaging relationships or leading to legal action
B1 in the worst case the business could be forced to close (insolvency) despite being profitable on paper
Answer: Any two, e.g. unable to pay suppliers/staff/bills on time; risk of insolvency despite being profitable on paper.

Question 8

M1 8,900 - 7,650 seen
A1 £1,250 cao (net cash flow)
dM1 2,700 + 1,250 seen (dependent on the net cash flow above; ft from question 9's April closing balance)
A1 £3,950 cao (closing balance)
Answer: Net cash flow £1,250; closing balance £3,950.

Question 9

(a) B1 £700 cao
(a) Answer: £700.
(b) B1 £2,200 cao (ft from part a)
(b) Answer: £2,200.
(c) B1 £2,200 cao (ft from part b: a month's opening balance equals the previous month's closing balance)
(c) Answer: £2,200.
(d) B1 negative £800 cao (accept '(£800)')
(d) Answer: negative £800.
(e) B1 £1,400 cao (ft from parts c and d)
(e) Answer: £1,400.
(f) B1 £1,400 cao (ft from part e)
(f) Answer: £1,400.
(g) B1 £1,600 cao
(g) Answer: £1,600.
(h) B1 £3,000 cao (ft from parts f and g)
(h) Answer: £3,000.

Question 10

M1 7,800 - 8,100 seen (= negative £300)
M1 3,000 + (-300) seen
A1 £2,700 cao
Answer: £2,700.

Question 11

B1 February identified
M1 2,000 - 1,400 seen
A1 £600 cao
Answer: February, by £600.

Question 12

Level 1 (1-3): Makes simple, undeveloped comments about the shortfall, with little or no use of the pack's figures and no clear recommendation.
Level 2 (4-6): Gives a developed argument for one option, using some of the pack's figures, but does not fully weigh both sides or reach a clearly justified recommendation.
Level 3 (7-9): Weighs the evidence for different responses to the shortfall, using the forecast and working-capital figures from this pack, and reaches a justified recommendation supported by that analysis.
Indicative content:
- The shortfall is relatively small (£600) and temporary, recovering strongly in March (net cash flow of £1,600, question 8g), and the business holds positive working capital of £3,800 overall, suggesting the underlying business is not in serious financial difficulty.
- Low-cost, no-new-borrowing options such as delaying a February supplier payment (question 11) or chasing early customer payment (question 12) may be enough to close a gap of only £600 without taking on new finance or interest costs.
- Against relying only on delaying payments: suppliers may not agree, or repeated delays could damage the relationship, so a small short-term overdraft may be a more reliable safety net for the gap.
- A full bank loan is unnecessary and disproportionate for a temporary £600 dip that reverses within one month, given March's forecast net cash flow of £1,600.
- Judgement: a reasonable recommendation is that Kofi arranges a small short-term overdraft facility (e.g. covering the £600 gap) as a low-cost safety net for February, while also trying to negotiate better payment timing with suppliers, rather than seeking a larger, more expensive loan for what the forecast shows is a brief, one-month dip.

Question 13

Level 1 (1-3): Makes simple, undeveloped points about the discount, with limited application to Bright Spark Electricals and little or no reference to the pack's figures.
Level 2 (4-6): Provides a developed and applied analysis of the benefits and drawbacks of the discount for Bright Spark Electricals' cash position, referring to the pack's figures.
Indicative content:
- Encouraging customers to pay within 7 days would bring forward cash inflows that would otherwise arrive later in the 30-day credit period, which could help close or reduce a shortfall like the one forecast for February (question 10).
- Faster payment reduces the risk of late or non-payment by credit customers, giving Bright Spark Electricals more reliable, predictable cash inflows to plan around.
- The 2% discount reduces the amount of cash actually received on each discounted sale, so total cash inflows would be slightly lower than the forecast figures in questions 8 and 18 for any customer who takes up the offer.
- Not every credit customer will take the discount, so the improvement to cash flow depends on how many customers change their payment behaviour, which is uncertain and hard to forecast precisely.
- A balanced conclusion is likely to note that bringing cash in earlier is valuable given the February shortfall shown in this pack, but the 2% cost needs to be weighed against how reliably it changes customer payment timing, rather than assumed to fully solve the shortfall.

Cash-flow forecasting - Worksheets, Questions and Revision

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3.4 Cash-flow forecasting

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