3.7

Cash

The most liquid asset of a business, essential for operations and flows in and out of the business.

Cash Flow

Refers to money coming in and going out of the business.

Cash Inflows

Money coming into the business, such as from sales revenue and loans.

Cash Outflows

Money going out of the business, including expenses like rent, wages, and taxes.

Net Cash Flow

The difference between cash inflows and cash outflows; should be positive to avoid bankruptcy.

Profit

The positive difference between a firm’s total sales revenue and its total production costs.

Loss

When costs exceed revenues, indicating the business is not profitable.

Investment

The purchase of non-current assets or financial instruments expected to generate future earnings.

Cash Flow Forecast

A document showing predicted cash inflows and outflows over a specific time period.

Cash Flow Statement

A financial document that records actual cash inflows and outflows over a specific period.

Opening Balance

The amount of cash at the beginning of a trading period.

Closing Balance

The amount of cash left in a business at the end of a trading period.

Overtrading

When a business expands too quickly without sufficient resources, leading to cash flow issues.

Bad Debts

Debts that cannot be paid by debtors, decreasing cash inflows for the business.

Working Capital Cycle

The period between cash outflows for production costs and cash inflows from customers.

Credit Control

The process of monitoring and managing debtors to ensure timely payments.