Question 1: Define the term 'cash flow' and explain why it is important for a business.

Answer: Cash flow refers to the movement of money into and out of a business. It is important because it determines the company's ability to pay expenses, invest, and remain solvent.

Question 2: List three sources of finance that a new business might use to start up.

Answer: Bank loans, personal savings, family and friends' investments.

Question 3: Describe the difference between fixed costs and variable costs with examples.

Answer: Fixed costs are expenses that do not change with the level of production, such as rent or salaries. Variable costs vary directly with production volume, such as raw materials or commission payments.

Question 4: Calculate the profit if a business has total revenue of £50,000 and total costs of £35,000.

Answer: Profit = Total Revenue - Total Costs = £50,000 - £35,000 = £15,000.

Question 5: Explain what a break-even point is for a business.

Answer: The break-even point is the level of sales at which total revenue equals total costs, resulting in neither profit nor loss.

Question 6: Sketch a simple cash flow forecast chart for a small business over a 6-month period. Include axes and labels but do not draw actual data points.

Answer: The sketch should include a horizontal axis labeled 'Months (Month 1 to Month 6)' and a vertical axis labeled 'Cash Balance (£)'. The chart should show a line that fluctuates to indicate expected cash inflows and outflows over time.

Question 7: Identify two financial documents a business owner would use to track income and expenses.

Answer: Income statement (profit and loss account) and cash flow statement.

Question 8: Draw a simple diagram of a basic business finance cycle, including the flow of income, expenses, and profit.

Answer: A circular flow diagram with arrows showing income coming into the business, expenses going out, and the remaining amount represented as profit. Labels should clearly identify each component.

Question 9: Explain the purpose of budgeting in a business and one benefit it provides.

Answer: Budgeting helps a business plan its income and expenses, ensuring financial control. A benefit is that it helps prevent overspending and prepares the business for future financial needs.

Question 10: Describe what is meant by 'credit' in a business context and give an example.

Answer: Credit refers to purchasing goods or services now and paying for them later. An example is a business buying stock on credit from a supplier, with payment due at a later date.