Cash and Cash-Flow
A business can be making a profit and still run out of money. Learn why cash is king, tell cash apart from profit, and read and complete a cash-flow forecast.
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Cash is king 💰
A business can be **making a profit** on paper and still fail, simply because it has no **cash** in the bank to pay its bills this month. Cash keeps a business alive from day to day. This module shows why cash matters, how it differs from profit, and how a **cash-flow forecast** predicts the money coming in and going out.
The language of cash flow 🔑
Four ideas run through this module:
Cash is not the same as profit ⚠️
Profit is **revenue minus costs** over a period. Cash is the actual money in the bank right now. They differ because a sale can be recorded as profit before the cash is received, for example when a customer buys on credit and pays later. So a profitable business can still run short of cash and be unable to pay suppliers or wages, which risks **insolvency**.
Work out the net cash flow 🔢
An interactive activity.
Cash versus profit ⚖️
Both matter, but they answer different questions about a business.
What is the problem? 🎯
A business is making a profit this year, yet this month it cannot pay its suppliers. What is the most likely problem?
- It has run short of cash
- It must be making a loss
- It has sold too many products
- It has paid too little tax
Work out the closing balance 🧮
An interactive activity.
Build a cash-flow forecast 🪜
An interactive activity.
Match each term to its meaning 🔗
- Cash inflow
- Cash outflow
- Net cash flow
- Closing balance
- Money coming into the business
- Money going out of the business
- Total inflows minus total outflows
- The cash left at the end of the month
Cash flow in words 🧩
Money coming into a business is a cash _____; money going out is a cash _____. The _____ cash flow is inflows minus outflows. The _____ balance is the opening balance plus the net cash flow, and it becomes next month's _____ balance.
Spot the cash inflows 📥
Select the TWO items that are cash INFLOWS for a business.
- Cash received from selling products to customers
- A bank loan paid into the business account
- Paying wages to employees
- Buying raw materials from a supplier
Spot the true statements 🖍️
An interactive activity.
The cash-shortage showdown 🧭
An interactive activity.
Why profit is not enough ✍️
An interactive activity.