Edexcel GCSE Business: Cash flow and sources of finance for a small business (1BS0) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover Theme 1, Topic 1.3 Putting a business idea into practice, items 1.3.3 and 1.3.4, from the Pearson Edexcel Level 1/Level 2 GCSE (9-1) in Business (1BS0) specification, Issue 2, July 2022. The specification says calculators may be used and that formulae are not provided, so learn them. All businesses and figures are invented.

Links: the Business hub, the printable checklist, the study guide, the revision notes and the free diagnostics.

Questions

1. Define the term insolvency. [2]

2. A small café has an opening balance of £3,200. In June, cash inflows are £11,400 and cash outflows are £12,650.

(a) Calculate the net cash flow for June. [2] (b) Calculate the closing balance for June. [2]

3. Complete the table for a bakery. Opening balance in August is £2,500. [5]

	Aug	Sep	Oct
Total inflows (£)	9,800	8,600	11,200
Total outflows (£)	10,400	9,300	9,900
Net cash flow (£)
Closing balance (£)

4. Explain one disadvantage to a business of relying on trade credit. [3]

5. Thornby Signs completes a job in October and sends the customer a bill for £14,000. It paid £8,500 for materials in October. The customer will pay after 60 days.

(a) Calculate the profit on this job. [2] (b) Analyse why Thornby Signs may still struggle to pay its employees in October. [3]

6. A business borrows £12,000 and repays £14,160 in total. Calculate the interest on the loan as a percentage. [3]

7. Give two short-term sources of finance and two long-term sources of finance. [4]

8. Fenwick Florist expects its bank balance to be £2,000 short in January and again in February after Christmas bills. The bank offers an overdraft that charges 1.5% interest per month on the amount overdrawn. Analyse whether an overdraft suits Fenwick Florist. [6]

9. Marlow Games, a start-up, needs £60,000 to launch its first game. Option A is venture capital: an investor provides £60,000 for 30% of the business. Option B is a bank loan: Marlow repays £72,000 in total over 48 months. Marlow expects profits of £22,000, £26,000, £30,000 and £34,000 over the next four years, and expects net cash flow of £1,900 a month before any finance payments.

(a) Calculate the interest on the loan as a percentage. [3] (b) Justify which option Marlow Games should choose. [6]

10. Orchard Print Studio has £1,800 in the bank at the start of March. Its forecast is below.

	Mar	Apr	May	Jun
Total inflows (£)	7,400	7,900	8,800	9,600
Total outflows (£)	8,600	9,400	8,300	8,100

(a) Calculate the closing balance for each month. [4] (b) Identify the month with the lowest closing balance. [1] (c) The bank offers an overdraft with a £1,500 limit. Evaluate whether Orchard Print Studio should take it. [5]

Answers

1. A business cannot pay its debts [1] when they fall due [1]. [2] Examiner insight: A definition earns credit when it says both what cannot be done (paying debts) and when (as they fall due); “has no money” alone is too loose.

2. (a) Net cash flow = inflows - outflows [1] = 11,400 - 12,650 = -£1,250 [1]. (b) Closing balance = opening balance + net cash flow [1] = 3,200 + (-1,250) = £1,950 [1]. [4] Examiner insight: The specification says workings should be given on Calculate questions, so show the formula and keep the minus sign on the net figure.

3. Net cash flow: Aug 9,800 - 10,400 = -600 [1]; Sep 8,600 - 9,300 = -700 [1]; Oct 11,200 - 9,900 = +1,300 [1]. Closing balances: Aug 2,500 - 600 = 1,900; Sep 1,900 - 700 = 1,200 [1]; Oct 1,200 + 1,300 = 2,500 [1]. [5] Examiner insight: Each month’s closing balance is the next month’s opening balance, so one early slip carries through the table. Check the last closing balance against the opening balance plus all three net cash flows.

4. Any one disadvantage, developed. For example: a new supplier may not offer credit to a business with no track record [1]. The business may then have to pay in advance or find another source of finance [1], which can strain its cash flow [1]. Another valid chain: the business may lose a discount for early payment, so goods cost more and profit margins fall. [3] Examiner insight: “Explain” asks for a point plus two expansion points. A second disadvantage listed beside the first usually adds less than developing the first one.

5. (a) Profit = revenue - costs [1] = 14,000 - 8,500 = £5,500 [1]. (b) The £8,500 for materials has already left the bank in October [1] but the £14,000 does not arrive for 60 days [1]. If the balance is low, there may be too little cash to pay wages on the due date [1]. [5] Examiner insight: Strong answers separate the profit figure from the timing of the cash, and link the shortage to a specific payment, here employees.

6. Interest = 14,160 - 12,000 = £2,160 [1]. Interest % = 2,160 / 12,000 [1] × 100 = 18% [1]. [3] Examiner insight: The specification’s formula divides by the borrowed amount, not by the total repayment. Dividing by 14,160 is a common slip that gives a different figure.

7. Short-term, any two of overdraft and trade credit [1] [1] (these are the two the specification names). Long-term, any two of personal savings, venture capital, share capital, loans, retained profit, crowd funding [1] [1]. [4] Examiner insight: “Give” tests recall, so a list is enough. Put each source in the right category; naming an overdraft as long-term would not be a correct answer.

8. Interest per month = 2,000 × 1.5% = £30 [1]; for two months £60 [1]. The shortage is temporary, so a short-term source matches the need [1]. An overdraft is flexible: Fenwick borrows only what it needs and stops when the gap ends [1]. A drawback is that the bank may reduce the limit or the rate may be higher than hoped, leaving Fenwick short at a busy time [1]. Judgement: the £60 cost is small compared with the cost of missing supplier or wage payments, so an overdraft suits Fenwick, provided the gap really does close by March [1]. [6] Examiner insight: “Analyse” answers gain from using the figures in the stem. A cost calculation plus a reason the source fits the length of the gap shows more than a general list of overdraft features.

9. (a) Interest = 72,000 - 60,000 = £12,000 [1]. Interest % = 12,000 / 60,000 [1] × 100 = 20% [1]. (b) Loan: monthly repayment 72,000 / 48 = £1,500 [1], which leaves £400 of the expected £1,900 net cash flow [1]. That margin is thin, so weaker sales could make repayments hard [1]. Venture capital: no repayments, but 30% of expected profit is 0.3 × 112,000 = £33,600 [1], far more than the £12,000 loan interest, and the investor may want a say [1]. Recommendation, either answer if reasoned: for example, choose the loan because it is much cheaper and Marlow keeps control, provided it can cover the thin margin, for instance with an overdraft or a delayed launch spend [1]. [9] Examiner insight: A “justify” answer should recommend one option using the data given and show why the other was not chosen. A recommendation that ignores the £400 margin or the £33,600 share would leave out the key evidence.

10. (a) Mar: 7,400 - 8,600 = -1,200; closing 1,800 - 1,200 = 600 [1]. Apr: 7,900 - 9,400 = -1,500; closing 600 - 1,500 = -900 [1]. May: 8,800 - 8,300 = +500; closing -900 + 500 = -400 [1]. Jun: 9,600 - 8,100 = +1,500; closing -400 + 1,500 = 1,100 [1]. (b) April [1]. (c) The lowest balance is -£900, inside the £1,500 limit, so the overdraft would cover the gap [1]. The deficit lasts only April and May and is positive again by June, so a short-term source fits [1]. The cost is interest on a modest sum for two months, which the June balance can absorb [1]. Risks: the forecast is an estimate, so if sales fall or customers pay late the gap could exceed £1,500, or last longer [1]. Alternatives such as asking customers to pay sooner or delaying purchases may reduce the need. Judgement: take the overdraft as a safety net, and also act to improve cash flow [1]. [10] Examiner insight: For “evaluate”, say what the figures show, weigh the benefit against the risk, and finish with a supported conclusion rather than a summary of features.

Where marks are usually lost

• Confusing cash and profit, or answering a cash question with a profit calculation.
• Forgetting the minus sign on a negative net cash flow, then adding instead of subtracting.
• Not carrying the closing balance forward as the next opening balance.
• Dividing interest by the total repayment instead of the borrowed amount.
• Classifying an overdraft as long-term or retained profit as short-term.
• Listing features of a source without linking them to the business in the case.
• Quoting figures from the stem without saying what they mean for the decision.
• Reaching a conclusion on “justify” or “evaluate” with no counter-argument.

Next steps

• Review the revision notes and the study guide.
• Return to the Business hub or tick off progress on the checklist.
• Find weak spots with the free diagnostics.
• Book a free trial class: /trial/.

Frequently asked questions

How do you calculate net cash flow and closing balance? Net cash flow is cash inflows minus cash outflows for the period, and the closing balance is the opening balance plus net cash flow. Each closing balance then becomes the next month’s opening balance.

What is the most common mistake in cash-flow forecast questions? Losing track of a negative net cash flow, then adding it instead of subtracting it, or failing to carry the closing balance forward as the next opening balance. Confusing cash with profit is another frequent error.

How do you work out loan interest as a percentage in Edexcel GCSE Business? Use (total repayment − borrowed amount) / borrowed amount × 100, a formula listed in Appendix 3 of the 1BS0 specification. Divide by the amount borrowed, not by the total repayment.

How should you answer a Justify question about sources of finance? Use the information in the case to recommend one of the two options, explain why it suits this business, and say why the other option is weaker. A conclusion with no counter-argument loses marks.

Official syllabus

Pearson Edexcel Level 1/Level 2 GCSE (9-1) in Business (1BS0), Specification, Issue 2, July 2022, published by Pearson Education Limited. Theme 1: Investigating small business, Topic 1.3 Putting a business idea into practice, items 1.3.3 and 1.3.4.