Edexcel IGCSE Business: Sources of business finance and cash flow forecasting (4BS1) – 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 Topic 3, sections 3.1 and 3.2 of the Pearson Edexcel International GCSE in Business (4BS1) specification, Issue 2, February 2026. Use the study guide and revision notes first if you need them. Course links: the 4BS1 Business hub, the printable checklist and the free diagnostics. Every business is invented and amounts are in dollars. The specification only names the sources of finance, so the descriptions used in the answers are standard business knowledge, not specification text.

Questions

1. Identify two sources of finance that come from inside a business. [2]

2. Distinguish between a short-term need and a long-term need for finance. Give an example of each. [4]

3. (a) Define retained profit. [1] (b) Explain one reason why a small business might prefer to use retained profit rather than a bank loan. [2]

4. Aziz Bakery starts January with 2,000 in the bank. Its forecast for the next three months is below.

	January	February	March
Cash sales	7,500	6,800	8,200
Ingredients	3,000	2,700	3,300
Wages	2,600	2,600	2,600
Rent	900	900	900

(a) Calculate the net cash flow for each month. [3] (b) Calculate the closing balance for each month. [3]

5. (a) Define insolvency. [1] (b) Explain why a business with rising sales could still become insolvent. [3]

6. Delmar Tools sells goods worth 12,000 in one month. Of this, 3,000 is paid in cash and 9,000 is sold on credit. The goods sold cost 7,000, paid in cash in the month, and wages of 2,000 are paid in cash.

(a) Calculate the profit for the month. [2] (b) Calculate the net cash flow for the month. [2] (c) State one reason why the two figures differ. [1]

7. (a) Explain one difference between venture capital and crowdfunding. [2] (b) Explain one drawback to the owner of using venture capital. [2]

8. Brightwell Foods plc is thinking of selling shares on the stock market to pay for a new factory.

(a) State why this source is open to Brightwell but not to a sole trader. [1] (b) Analyse one advantage of a stock market flotation for Brightwell. [2] (c) Analyse one disadvantage of a stock market flotation for Brightwell. [2]

9. Ravi runs Kestrel Joinery as a sole trader. He needs 40,000 for a machine that should last about ten years and has 6,000 of personal savings.

(a) State one reason why share capital is not open to Ravi. [1] (b) Analyse why a loan is more suitable than an overdraft for this purchase. [3]

10. Corvin Gifts starts the first month with 1,200 in the bank. Over three months it forecasts sales receipts of 5,400, 4,800 and 5,000. Monthly payments for stock are 3,600, 3,000 and 3,200; wages are 1,500 and overheads 900 in each month. In month 3 it also plans to pay 2,400 for a delivery van.

(a) Calculate the closing balance at the end of each month. [3] (b) State what the month 3 closing balance shows. [1] (c) Identify the cause of the change in month 3. [1]

11. Using your answers to question 10, evaluate whether Corvin Gifts should (i) arrange an overdraft or (ii) ask its stock supplier to extend payment terms. [8]

12. Zainab plans to open a bakery cafe and needs 25,000 to start up. She has 5,000 of savings. She is considering a bank loan, crowdfunding or venture capital for the rest. Justify which source she should choose. [8]

Answers

1. Any two from: personal savings [1], retained profit [1], selling assets. [2] Examiner insight: Answers that name the sources exactly as the specification does are simple to match; a vague phrase such as “own money” may not show which source is meant.

2. A short-term need is for money that is used and recovered within a short period [1], for example paying wages or buying inventory ahead of sales [1]. A long-term need is for spending on something that lasts for years [1], for example buying a new building or machinery [1]. [4] Examiner insight: To distinguish, set the two needs against each other, because describing only one tends to leave marks unclaimed.

3. (a) Profit kept in the business, after tax and after owners are paid, to be reinvested. [1] (b) It has no interest to pay [1], which keeps costs down, and there are no repayments to make when sales are slow [1]. [2] Examiner insight: A reason becomes an explanation when it is followed by a consequence for the business, which is what the second mark usually needs.

4. (a) Total outflows: January 3,000 + 2,600 + 900 = 6,500; February 2,700 + 2,600 + 900 = 6,200; March 3,300 + 2,600 + 900 = 6,800. Net cash flow = inflows - outflows: January 7,500 - 6,500 = 1,000 [1]; February 6,800 - 6,200 = 600 [1]; March 8,200 - 6,800 = 1,400 [1]. (b) January 2,000 + 1,000 = 3,000 [1]; February 3,000 + 600 = 3,600 [1]; March 3,600 + 1,400 = 5,000 [1]. [6] Examiner insight: Showing the totals and the carry-forward of each balance lets a slip be seen and gives you a record of your method if one figure is wrong.

5. (a) Unable to pay debts when they fall due. [1] (b) Rising sales may be on credit, so the cash is not yet received [1]. Meanwhile it must pay suppliers, wages and overheads now [1]. If it cannot, suppliers and employees may stop working with it, which can lead to failure even though it is selling well [1]. [4] Examiner insight: Strong answers link sales to the timing of cash. Writing only “it makes a loss” confuses insolvency with unprofitability.

6. (a) Profit = sales revenue - goods cost - wages = 12,000 - 7,000 - 2,000 [1] = 3,000 [1] (b) Cash received 3,000; cash paid 7,000 + 2,000 = 9,000; net cash flow = 3,000 - 9,000 [1] = -6,000 [1] (c) 9,000 of the sales has not been received in cash yet. [1] [5] Examiner insight: A cash question wants the sign shown. Including 12,000 as the inflow is a typical slip, because credit sales are not cash received yet.

7. (a) Venture capital comes from specialist investors, usually a small number, who take a share of the business [1], whereas crowdfunding comes from a large number of people each contributing a small amount [1]. [2] (b) The owner gives up part of the ownership [1], so the investors have a say in decisions and take a share of any profit or sale value [1]. [2] Examiner insight: An explanation of a difference needs a point on each source. A drawback is developed by saying what the owner loses.

8. (a) Brightwell is a public limited company, and only a plc can offer shares to the public. [1] (b) It can raise a very large sum [1], enough to pay for a whole factory without borrowing, so no interest is due [1]. (c) The costs and reporting requirements are high [1], which reduces the net money raised and takes management time [1]. [5] Examiner insight: An analysis point is usually built as a statement, then a development tied to the business named in the question, so a generic remark about shares tends to stay short.

9. (a) Only a company can issue shares, and a sole trader is not a company. [1] (b) The machine lasts ten years, so it is a long-term need [1]. A loan can be repaid over several years in step with the machine’s use [1], whereas an overdraft is short-term, carries high interest and can be recalled by the bank at short notice, which is risky for a 40,000 purchase [1]. [4] Examiner insight: Matching how long the finance lasts to how long the need lasts is the central idea, and quoting the ten years from the stem shows the use of the case.

10. (a) Month 1: inflow 5,400; outflow 3,600 + 1,500 + 900 = 6,000; net -600; closing 1,200 - 600 = 600 [1]. Month 2: outflow 3,000 + 1,500 + 900 = 5,400; net 4,800 - 5,400 = -600; closing 0 [1]. Month 3: outflow 3,200 + 1,500 + 900 + 2,400 = 8,000; net 5,000 - 8,000 = -3,000; closing 0 - 3,000 = -3,000 [1]. (b) The business is forecast to be 3,000 overdrawn, so it would run out of cash. [1] (c) The 2,400 payment for the van. [1] [5] Examiner insight: Write a negative balance with its minus sign and read it as a cash shortage, not as a profit figure.

11. Overdraft: it covers the 3,000 forecast shortfall quickly [1], and interest is paid only on the amount used, so a short gap costs little [1]. However interest can be high and the bank can demand repayment, and Corvin has no cash cushion, so repayment depends on sales improving [1]. Longer supplier terms: delaying stock payments of about 3,200 a month would keep more cash in the bank [1] at no interest [1], but the supplier may refuse, lose goodwill, or withdraw prompt-payment discounts [1]. Judgement: the overdraft is more reliable because it does not rely on the supplier agreeing, so it should arrange it for month 3 and also ask for extended terms to reduce how much it uses [1][1]. [8] Examiner insight: Answers that weigh both options using the stem’s figures and finish with a decision that follows from the points made tend to be rewarded over those that list four separate facts.

12. The need is long-term and to start up, since she has no trading history [1]. External funds needed: 25,000 - 5,000 = 20,000. [1] A bank loan fits a long-term need and she keeps full ownership [1], but repayments and interest must be met from the first months before the cafe is established, and the bank may want security [1]. Crowdfunding tests customer interest and needs no bank [1], but she might raise less than 20,000 and so get nothing, and the campaign takes time [1]. Venture capital is aimed at ventures with high growth potential and would need her to give up ownership, which seems unsuitable for a single cafe [1]. Judgement: a bank loan, because it gives certainty of the full amount and keeps control, provided her forecast shows she can meet repayments [1]. [8] Examiner insight: A justification gains from being tied to the case, here a start-up with an amount to raise, and from rejecting at least one alternative with a reason.

Where marks are usually lost

• Naming a source of finance with no explanation of how it works for this business.
• Giving a list of advantages with no drawback when the question asks you to weigh the choice.
• Treating credit sales as cash received in the month.
• Reporting a negative net cash flow or closing balance as a positive number.
• Not carrying each closing balance into the next opening balance.
• Offering share capital or a stock market flotation to a sole trader or a private business.

Next steps

Review the revision notes and the study guide. Go back to the 4BS1 Business hub, tick off the checklist, take the free diagnostics, or book a free trial class.

Frequently asked questions

What do these sources of finance and cash-flow questions cover? They follow Pearson Edexcel International GCSE Business (4BS1) sections 3.1 and 3.2: the need for finance, internal and external sources, why cash matters, cash and profit, and calculating and interpreting cash-flow forecasts.

Are credit sales counted as cash in the month they are made? No. Cash from a credit sale is counted when the customer actually pays, so treating credit sales as cash received in the month of sale is a common error.

Can a sole trader raise share capital? No. Share capital comes from selling shares in a company, and stock market flotation is only for public limited companies, so offering either to a sole trader is a mistake.

How should you show a negative net cash flow? Keep the minus sign and subtract it from the opening balance. Reporting a negative net cash flow or closing balance as a positive number loses marks.

Official syllabus

Pearson Edexcel International GCSE in Business (4BS1), Specification, Issue 2, February 2026, published by Pearson Education Limited. Topic 3: Business finance, sections 3.1 “Business finance - sources” (3.1.1 to 3.1.3) and 3.2 “Cash flow forecasting” (3.2.1 to 3.2.2).