Lesson 6.2.5

6.2.5 Cash Flow Management Quiz: NCFE Business & Enterprise, Unit 6

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

In partnership with Revision Ninja

Cash flow management is about keeping enough money in the bank at the right moments. This lesson separates profit from cash, explains why a profitable firm can still fail, and compares practical actions such as discounts, longer supplier terms, selling stock and overdrafts, plus internal causes of problems.

Key points

  • Profit compares revenue with costs over a period, whereas cash flow is about when money actually enters and leaves the bank.
  • A profitable firm that has run out of cash cannot pay wages or suppliers on time, so it may be unable to keep trading.
  • Holding cash lets a firm settle bills on due dates and survive shocks such as a broken freezer.
  • To speed up inflows, offer a discount for early payment; to delay outflows, negotiate longer terms with suppliers.
  • Discounting slow-moving stock turns idle goods into cash quickly, while extra spending of any kind makes a shortfall worse.
  • Stretching supplier credit carries a risk, as an unhappy supplier may refuse to deliver again.
  • Forecasts are only estimates and should be checked against reality, and poor stock control is an internal cause of shortages.

Key terms

Cash flow
The movement of money into and out of a business over time.
Cash shortfall
A period when the cash going out is expected to exceed what is available to pay.
Early payment discount
A price reduction offered to customers who settle their invoice quickly.
Credit terms
The agreed number of days a business has to pay its supplier.
Overdraft
Short-term bank borrowing used to cover a temporary gap in cash.
Receivables
Money owed to the business by customers who have bought on credit.
Internal cause
A problem that arises from decisions made inside the business, such as overordering stock.

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The 20 questions

  1. What is the immediate danger for a profitable business with zero cash?

    • Insolvency
    • Excessive retained profit
    • High corporation tax
    • Falling share price

  2. What is the primary purpose of creating a cash flow forecast?

    • Predicting shortages
    • Measuring asset value
    • Calculating gross profit
    • Setting corporation tax

  3. Which action improves short-term cash flow the fastest?

    • Extending customer credit
    • Buying new machinery
    • Discounting slow-moving stock
    • Increasing staff wages

  4. In May a business receives £18,000 and pays out £21,500. What is its net cash flow for May?

    • Negative £39,500
    • Negative £3,500
    • Positive £18,000
    • Positive £3,500

  5. A forecast shows a £5,000 shortfall in three months. What should the owner do?

    • Arrange a bank overdraft
    • Increase owner drawings
    • Ignore the warning
    • Declare bankruptcy

  6. Which method helps speed up cash inflows from credit customers?

    • Delayed invoicing
    • Extended credit terms
    • Early payment discounts
    • Higher selling prices

  7. Which item represents a typical cash outflow in a cash flow forecast?

    • Rent payments
    • Customer receipts
    • Bank loan received
    • Capital introduced

  8. A business starts March with £2,000 in the bank, receives £9,000 and pays out £7,500. What is its closing balance?

    • £3,500
    • £11,000
    • £18,500
    • £1,500

  9. Why should business owners view cash flow forecasts with caution?

    • Based on estimates
    • Guaranteed by banks
    • Based on past facts
    • Audited by HMRC

  10. What is the main risk of asking suppliers for extended payment terms?

    • Lower profit margins
    • Withdrawn credit
    • Higher staff turnover
    • Increased corporation tax

  11. Why must a business maintain daily cash reserves in its bank account?

    • Purchasing fixed assets
    • Clearing long-term loans
    • Paying annual dividends
    • Paying everyday bills

  12. How does a cash flow forecast primarily help a small shop owner?

    • Eliminating fixed costs
    • Guaranteeing high sales
    • Highlighting deficits
    • Reducing tax liability

  13. Which action eases low cash flow pressure most quickly for a firm?

    • Delaying supplier payments
    • Writing off bad debts
    • Purchasing new machinery
    • Increasing staff wages

  14. Which item is recorded as a cash inflow in a forecast?

    • Raw materials bought
    • Rent paid
    • Cash from sales
    • Wages paid

  15. Which method directly tackles slow-paying customers?

    • Higher selling price
    • Longer trade credit
    • Early settlement discount
    • Delayed advertising

  16. What measures money moving in and out of a bank?

    • Operating surplus
    • Net profit
    • Cash flow
    • Gross profit

  17. What is a major operational benefit of holding healthy cash reserves?

    • Avoiding all taxation
    • Securing free grants
    • Maximising gross profit
    • Paying bills promptly

  18. Which source best covers a short-term cash flow gap?

    • Share capital
    • Bank overdraft
    • Retained profit
    • Commercial mortgage

  19. Which internal factor causes business cash flow problems?

    • Rising interest rates
    • Poor stock control
    • Aggressive competitor pricing
    • Falling consumer spending

  20. What does a negative closing cash balance indicate?

    • Making a net profit
    • Zero current liabilities
    • Overdrawn bank account
    • High retained earnings

All NCFE Business & Enterprise quizzes