Unit 3.7 Glossary of Key Terms - Cash Flow

These flashcards cover key terms related to cash flow, providing definitions for important financial concepts.

Bad debt

Occurs when a debtor is unable to pay outstanding invoices to the business, reducing cash inflows for the vendor.

Cash

The money a business has, either at its premises or in its bank account; the most liquid of current assets.

Cash flow

The movement of an organization’s cash inflows and cash outflows.

Cash flow forecasting

A quantitative technique used to predict cash flow into and out of the business for a specific period.

Cash flow problems

Liquidity issues that arise when an organization has insufficient funds, with negative net cash flow.

Cash inflow

Money coming into a business from sales revenue and other financing sources.

Cash outflow

Money going out of a business to cover costs like raw materials and wages.

Closing balance

The value of cash held by a business at the end of a trading period.

Collateral

A financial guarantee using a firm’s fixed assets to secure loan capital.

Credit control

The process of managing debtors, ensuring suitable customers receive trade credit.

Current assets

Short-term assets that can be easily converted into cash, such as cash, stocks, and debtors.

Current liabilities

Short-term debts that need to be repaid within twelve months.

Debtors

Individuals or businesses that owe money to the organization due to purchases on trade credit.

Fixed assets

Items owned by a business used repeatedly for production purposes.

Liquidity

The extent to which an organization can convert its assets into cash.

Liquidity crisis

A situation where a business cannot pay its short-term debts, potentially leading to bankruptcy.

Liquidity position

A measure of how much liquidity a business has to continue its operations.

Liquidity problem

Occurs when cash inflows are less than cash outflows, resulting in negative net cash flow.

Net cash flow

The difference between total cash inflows and total cash outflows for a specific period.

Net current assets

Also known as working capital, it reveals a business's liquidity position.

Opening balance

The value of cash held by a business at the start of a trading period.

Overdrafts

A financial service from banks allowing customers to withdraw more money than available in their account.

Profit

The value of sales revenue after all costs have been deducted.

Sales revenue

The value of goods/services sold; calculated as Price × Quantity.

Short-term loans

Funds borrowed from a lender, repayable within 12 months.

Stocks

Goods available for sale by a business, intended to generate cash quickly.

Tax

Payment made to the government on profit earned after costs and expenses.

Trade creditors

Suppliers not yet paid by the business, usually within 30 to 60 days.

Working capital

Cash or liquid assets available for a business's daily operations.

Working capital cycle

The duration between paying for production and receiving cash from customers for those goods.