Practice Flashcards
Flip to reveal answersKey difference between cash flow and profit?
Track your progress — Sign up free to save your progress and get smart review reminders based on spaced repetition.
All 25 Flashcards — Cash flow basics
Sign up free to track progress and get spaced-repetition review schedules.
Question
Key difference between cash flow and profit?
Answer
Profit = accounting measure (revenue minus costs). Cash flow = actual money moving in/out of the bank.
💡 Hint
Accounting vs actual
Question
Three key cash flow formulas?
Answer
Net CF = Inflows − Outflows. Closing = Opening + Net CF. Cash flow ≠ Profit.
💡 Hint
Net, closing, ≠ profit
Question
Formula for closing balance?
Answer
Closing balance = Opening balance + Net cash flow
💡 Hint
Opening + net flow
Question
Why is cash the 'lifeblood' of a business?
Answer
Without cash, can't pay suppliers, employees or costs — even if profitable on paper.
💡 Hint
No cash = can't function
Question
What is cash flow?
Answer
The movement of money into and out of a business over a period of time.
💡 Hint
Money in and out
Question
What is the #1 cause of small business failure?
Answer
Running out of cash — more fail from this than from being unprofitable.
💡 Hint
Cash flow failure
Question
Formula for net cash flow?
Answer
Net cash flow = Total inflows − Total outflows
💡 Hint
In minus out
Question
Example of profit but negative cash flow?
Answer
Builder completes $50k project (profit) but customer pays 3 months later — no cash for workers.
💡 Hint
Sold but not paid yet
Question
Opening $5k, inflows $12k, outflows $14k. Closing balance?
Answer
Net = $12k − $14k = −$2k. Closing = $5k + (−$2k) = $3,000
💡 Hint
5k + (-2k) = 3k
Question
Cash flow ≠ Profit in one sentence
Answer
Profit = revenue minus costs; cash flow = actual timing of money entering/leaving the bank.
💡 Hint
Accounting vs movement
Question
Give two examples of cash inflows
Answer
Cash sales, credit sales received, loans, investments, interest received.
💡 Hint
Money coming IN
Question
This month's closing balance = next month's ___
Answer
Opening balance — carries forward automatically.
💡 Hint
Closing → Opening
Question
Example of positive cash flow but a loss?
Answer
Business receives a large loan (cash in) but costs exceed revenue — has cash, making a loss.
💡 Hint
Loan gives cash, still losing
Question
Name three things a business needs cash to pay
Answer
Suppliers, employees, daily operating costs (rent, utilities, insurance).
💡 Hint
Suppliers, staff, costs
Question
#1 cause of small business failure?
Answer
Cash flow problems — running out of cash even if profitable.
💡 Hint
Cash flow kills
Question
Why must a business pay suppliers on time?
Answer
To maintain relationships and supply chains — late payment can mean no more deliveries.
💡 Hint
Relationships matter
Question
Quick: Closing balance = ?
Answer
Opening balance + Net cash flow
💡 Hint
Opening + net
Question
Give two examples of cash outflows
Answer
Rent, wages, stock purchases, loan repayments, utilities.
💡 Hint
Money going OUT
Question
Profit includes depreciation but cash flow doesn't. Why?
Answer
Depreciation is a non-cash accounting entry — no money actually leaves the bank.
💡 Hint
No cash movement
Question
What does a negative closing balance mean?
Answer
Business has run out of cash — needs additional finance to pay bills.
💡 Hint
No cash left
Question
Three key cash flow balance terms?
Answer
Opening balance (start), net cash flow (in minus out), closing balance (end).
💡 Hint
Start + flow = end
Question
Quick: Net cash flow = ?
Answer
Total inflows − Total outflows
💡 Hint
In minus out
Question
Cash flow is about ___, not when sales are recorded
Answer
Timing — when money actually enters/leaves the bank, not when transactions are recorded.
💡 Hint
When cash moves
Question
Can a profitable business still fail?
Answer
Yes — if it runs out of cash to pay bills. Profit ≠ cash.
💡 Hint
Profitable but cashless
Question
'Explain cash flow vs profit' — why prepare for this?
Answer
One of the most frequently asked exam questions. Need a clear answer with an example.
💡 Hint
Top exam question
Read the notes
Full study notes for Cash flow basics
Topic 3.7 hub
Cash flow
More from Topic 3.7
All flashcards in this topic
BM exam skills
Paper structures & tips
Track your progress with spaced repetition
Sign up free — Aimnova tells you exactly which cards to review and when, so you remember everything before your IB exam.
Start Free