3. Accounts And Finances 20. Working Capital

Front 1

Working capital

Back 1

the capital needed to pay for raw materials. Day-to day running costs and credit offered to customers in accounting terms = current assets – current liabilities

Front 2

Liquidity

Back 2

the ability of a firm to be able to pay its short term debts

Front 3

Liquidation

Back 3

when a firm ceases trading and its assets are sold for cash

turning assets into cash may be insisted on by courts if suppliers have not been paid

Front 4

Working capital cycle

Back 4

the period of time between spending cash on the production process and receiving cash payments from customers

Front 5

Cash flow

Back 5

the sum of cash payments to a business (inflows) less the sum of cash payments made

Front 6

Liquidation Insolvent

Back 6

when a business cannot meet its short term debt

Front 7

Cash Inflows

Back 7

payments in cash received by a business, such as those from customers (debtors) or from the bank, e.g. receiving a loan

Front 8

Outflows

Back 8

payments in cash made by a business, such as those to suppliers and workers

Front 9

Debtors

Back 9

customers who have bought products on credit and will pay cash at an agreed date in the future

Front 10

Cash flow forecast

Back 10

estimate of a firm’s future cash inflows and outflows

Front 11

Net monthly cash flow

Back 11

estimated difference between monthly cash inflows and outflows

Front 12

Opening cash balance

Back 12

cash held by the business at the start of the month

Front 13

Closing cash balance

Back 13

cash held at the end of the month becomes next month’s opening balance

Front 14

Credit control

Back 14

monitoring of debts to ensure that credit periods are not exceeded

Front 15

Bad Debt

Back 15

unpaid customer's bills that are now unlikely to be ever paid

Front 16

Overtrading

Back 16

expanding a business rapidly without obtaining all of the necessary finance so that a cash flow shortage develops