Basic Financial Accounting

Front 1

Good liquidity/solvent

Back 1

A business has sufficient cash to draw upon to meet its liabilities as they fall due or change their assets into cash

Front 2

Ideal business

Back 2

Profitable and liquid

Front 3

The four main components of working capital

Back 3

- Inventory
- Trade receivables
- Trade payables
- Cash & cash equivalents

Front 4

Inventory: too much/too little

Back 4

Too much:
- Caused by having unusable or slow moving items
- Keeping inventory incurs costs such as storage, insurance
Too little:
- Can cause hold-ups in production due to lack of parts
- Unsatisfied customers

Front 5

Trade receivables: too much/too little

Back 5

Too little:
- Can be a problem if the customers are loosing customers due to not offering enough credit

Front 6

Trade payables: too much/too little

Back 6

Too much:
- Loss of reputation
- Risk of loosing supplies
Too little:
- Paying too quickly makes no sense

Front 7

Cash and cash equivalents: too much/too little

Back 7

Too little:
- Unpaid bills
- Increasing borrowing

Front 8

Cash flow statements

Back 8

A summary of cash and bank transactions over a financial period

Front 9

Cash flow forecasts

Back 9

A practical exercise where a business is looking ahead to assess not only future income and expenditure but also the level of funding required for a defined period