Cash Flow Test

1
Cash Flow Test

• This test consists of 10 questions designed to
  test your understanding of cash flow analysis.
• The links provide you with a choice of answer,
  along with explanations and solutions.
• You will need a calculator to complete this test.

2
Question 1.

• A cash flow forecast will differ from a Profit
  and Loss Account because of which of the
  following reasons,
• a. It does not show depreciation
• b. They always cover different accounting periods
• c. Cash flow ignores payments from debtors

3
As depreciation is a paper transaction, it does
not involve a flow of cash. Your answer is
correct.
4
It is normal for Profit and Loss Accounts and
Cash flows to cover the same period, but this is
not always so.Try again.
5
Cash flow includes payments from debtors when
received. Try again.
6
Question 2.

• A cash flow forecast predicts a potential
  negative balance of 2,000 for 2 months, before
  returning to a positive balance. Which of the
  following methods could be used to fund this?
• A. Bank Loan
• B. Sale and lease back of assets
• C. Overdraft

7
Why use long term lending for a short term need?
Try again
8
Normal used when things are desperate, or for
businesses who wish to improve the availability
of capital.
9
Correct. A short term facility to match a short
term need.
10
Question 3.

• Which of the following is a reason for comparing
  predicted cash flow with actual cash flow?
• A. To arrange an overdraft
• B. To improve future financial management
• C. To calculate profit or loss

11
A bit late to arrange an overdraft if one was
needed. Try again
12
Correct.
13
Argh. A cash flow does not show Profit or
Loss! Please try again!
14
Question 4.

• Which of the following can cause actual cash flow
  to differ from predicted cash flow?
• A. An increase in valuation of fixed assets
• B. An increase in depreciation provisions
• C. An unexpected increase in cost of raw materials

15
Fixed assets shown on Balance Sheet. Try again
16
Depreciation is a accounting cost involving no
flow of cash
17
Correct. Expenditure will increase.
18
Question 5.

• Net cash flow is calculated by?
• A. Adding opening balance for the period to
  receipts for the period.
• B. Taking total expenditure for a period from
  total receipts for the same period

19
Wrong. You have failed to allow for expenditure.
20
Correct.
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Question 6.

• A firm has an opening balance in July of 3,600,
  total receipts for July are 6,700 and total
  payments are 10,100. On the 1st of August the
  firm receives a final tax demand for 1,700. Does
  the firm have the cash available to pay the tax
  man?
• No
• Yes

22
Correct. You have added opening balance to
receipts and deducted payments. Closing balance
would be only 200
23
Wrong. You must add opening balance to receipts
and deduct payments.
24
Question 7.

• Short term cash flow problems may be resolved by?
• A. Increasing overtime to increase output
• B. Appointing a debt factor, to manage debtors

25
Wrong. This will immediately cause an increase
in expenditure.
26
Correct. The factor will pay 80 of the value of
outstanding debts immediately.
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Question 8.

• A firm has a negative opening balance in August
  of -3,700, payments by debtors over the month
  are 5,200, cash receipts are 6,700. Expenses
  are 10 more than the predicted 9,500. What will
  be the opening balance for September?
• A. -1300
• B. -2250
• C. 5150

28
Wrong. Add opening balance and all receipts.
Calculate the new expenditure figure. Take one
from the other to find you new opening balance.
29
Correct. You added opening balance and all
receipts. You then calculated the new expenditure
figure. And finally took one from the other to
find you new opening balance.
30
Wrong. Add opening balance and all receipts.
Calculate the new expenditure figure. Take one
from the other to find you new opening balance.
31
Question 9.

• A firms opening balance for January is 47,000,
  its closing balance for January 39,500. Total
  receipts for the month were 67,800. What were
  the total outgoings for January?
• A. 7,500
• B. 154,300
• C. 75,300

32
Wrong.Add opening balance for Jan. to
receipts then take away closing balance. This
will give you the expenditure figure.
33
Wrong.Add opening balance for Jan. to
receipts then take away closing balance. This
will give you the expenditure figure.
34
Correct. You added the opening balance for Jan.
to receipts and then took away closing balance.
This gave you the expenditure figure.
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Question 10.

• When predicting future cash flows which of the
  following should be considered?
• 1. The expected level of inflation
• 2. The need to purchase new fixed assets
• 3. New competition entering the market
• A. 1 only
• B. 1 and 3
• C. 1,2, and 3

36
Inflation will affect cash flows. But Other
factors also need to be considered. Try again
37
Inflation and competition will affect cash flows.
But other factors also need to be
considered. Try again
38
Correct.All three will have an impact on cash
flows.
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You have now completed the test. For further
more detailed revision please use the case
studies on the ALoA web site. www.aloa.co.uk