D1: Business Accounting
D1: You are required to justify actions a business might take when experiencing cash flow problems identified in Task 5 (M1).
Cash flow shows the movement of cash in and out of the business in future. It is an estimate of the amount of money flow in and flow out of the business. There are some problems that are identified in the organisation of partnership. There are problem in cash flow forecast in the month of January, July and August and September. There are some possible solutions for these problems to correct the cash flow forecast. The actions that a business might take are such as:
First step that business might take is to perform a good forecast. They should know that what will happen in future though some people said that it is unpredictable to know about future cash flow forecast but it is possible if a business thinks about the unfavourable movement in cash flow like where their cash flow currently stand and where it is likely to go in future. If they are planning to sales more which means they need to hire more employees. This will affect their outflow as they need to pay more. The owners of the business over purchased the goods as compare to other months so their closing balance gone negative. The company should monitor its operations. If they do not monitor their operation then expenses of the company will rise and revenue will fall. The negative cash flow occurs because of this reason. The statement of cash flow is divided into three parts; operating, investing and financing. When cash flow adds these parts, all of the parts can reduce or contribute the problems of cash flow. If the raw materials are purchased on credit basis then the time delay between the cash outflows and cash inflows will occur problem in cash flow. The owner of the business should delay their purchases of capital expenditure items. If they do so, there would be no need to purchase raw materials on credit. The business...
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