IGCSE Business: Cash flow forecast (Cambridge 0264) – 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.

This set covers section 5.2 (Cash flow forecast) of the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029. Both papers are based on all the subject content. Revise first with the study guide and revision notes. See also the course hub, the printable checklist and the free diagnostics.

Money figures are in dollars. All businesses are invented. Negative figures are shown with a minus sign.

Questions

1. State two reasons why a business needs cash. [2]

2. Define the terms (a) opening balance and (b) net cash flow. [2]

3. Rushden Garden Supplies has an opening balance of 5,000 dollars in October. Its forecast total cash inflows are 12,000, 9,500, 8,000 and 15,000 for October to January. Its forecast total cash outflows are 10,500, 11,000, 9,800 and 12,200. (a) Complete the forecast by calculating the net cash flow, opening balance and closing balance for each of the four months. [6] (b) State the month with the lowest closing balance. [1] (c) Explain what the forecast shows about Rushden’s cash position. [2]

4. Alderley Joinery makes a profit selling furniture to hotels. It allows hotels 60 days to pay. Explain why Alderley may still run out of cash. [4]

5. Stanbury Tutors has an opening balance of 1,000 dollars in January. Its forecast closing balances are 200, -1,500, -2,000 and -600 for January to April. (a) Identify the months in which Stanbury expects to be short of cash. [1] (b) State the smallest overdraft limit that would cover the forecast shortage. [2] (c) Stanbury’s income comes from fees paid by parents. Analyse one reason why the forecast might turn out to be wrong. [3]

6. Zenara Fabrics has a forecast for April to July.

	April	May	June	July
Opening balance	7,000	7,500	6,000	5,500
Total cash inflow	10,000	11,000	12,500	9,000
Total cash outflow	9,500	12,500	13,000	9,500
Net cash flow	500	-1,500	-500	-500
Closing balance	7,500	6,000	5,500	5,000

A shop owing Zenara 3,000 dollars, included in the April inflow, will pay in June instead. (a) Amend the forecast for April, May and June. [5] (b) State the new closing balance for July. [1]

7. Fairmile Bikes expects to be short of cash in March. Explain one advantage and one disadvantage of using an overdraft. [4]

8. Part of the forecast for Gresford Print is shown. Letters replace missing figures.

	April	May	June
Opening balance	2,400	C	F
Total cash inflow	6,200	D	7,000
Total cash outflow	6,900	5,600	G
Net cash flow	A	200	-600
Closing balance	B	E	H

Calculate the missing values A to H. [4]

9. Explain two reasons why the owner of Lyndale Cafe prepares a cash flow forecast. [4]

10. Tidwell Boatyard plans to buy a new crane in August for 18,000 dollars. The forecast below includes the crane. The boatyard has an agreed overdraft limit of 6,000 dollars. Its timber supplier allows 30 days to pay. Customers pay when they collect their boats. The existing crane works but is slow.

	July	August	September	October
Total cash inflow	22,000	21,000	24,000	20,000
Total cash outflow	19,000	37,500	20,000	18,500

The opening balance in July is 9,000 dollars. (a) Calculate the closing balance for August. [2] (b) Recommend and justify how Tidwell should deal with its cash position. [8]

11. Penwick Pottery has an opening balance of 3,000 dollars in June. Forecast inflows for June to September are 8,000, 6,000, 6,500 and 9,500. Forecast outflows are 7,500, 8,200, 8,800 and 8,000. The owner is considering one of two proposals. Proposal 1: a customer due to pay 2,500 dollars in September is asked to pay in August. Proposal 2: 1,500 dollars of August payments to a supplier is delayed until September. (a) Calculate the forecast closing balance for August. [2] (b) Justify which proposal Penwick should choose. [6]

Answers

1. Two valid reasons, for example to pay wages [1] and to pay suppliers [1] (also acceptable: rent, bills, loan repayments). [2] Examiner insight: Two different uses of cash gain credit. Writing “pay wages” and “pay employees” repeats one idea.

2. (a) The cash held by the business at the start of the month [1]. (b) Cash inflow minus cash outflow for the month [1]. [2] Examiner insight: Definitions that use the other term, such as “closing balance of the last month” for opening balance, should still say it is cash held at the start.

3. (a) Net cash flow: Oct +1,500, Nov -1,500, Dec -1,800, Jan +2,800 [2]. Closing balances: 6,500, 5,000, 3,200 and 6,000 [3]. Opening balances: Nov 6,500, Dec 5,000, Jan 3,200 [1]. [6] (b) December (3,200) [1] [1] (c) The closing balance stays positive in every month [1], but the business spends more than it receives in November and December, so cash falls before recovering in January [1]. [2] Examiner insight: Work down each column in order. A single slip in the net row passes into every later closing balance, so check each line as you go.

4. Alderley sells on credit, so the sale is made but cash is not received for 60 days [1]. Its own costs, such as wages and materials, must be paid sooner [1]. The cash outflow therefore comes before the inflow [1], so cash may run out even though the sales are profitable [1]. [4] Examiner insight: The strongest answers link timing to the business named in the question. A general statement that “profit is not cash” with no explanation of why gains less.

5. (a) February, March and April [1] [1] (b) The lowest closing balance is -2,000, at the end of March [1]. An overdraft limit of at least 2,000 dollars is needed [1]. [2] (c) Parents may pay fees late [1], so cash inflow in a month is lower than forecast [1], which makes the shortage deeper or longer than the forecast shows [1]. (Accept another valid reason, fully developed.) [3] Examiner insight: In (b), the answer is the largest negative balance. The final month’s -600 is not the peak shortage.

6. (a) April inflow becomes 7,000 [1] and the closing balance becomes 4,500 (net -2,500) [1]. May opens at 4,500 and closes at 3,000 [1]. June inflow becomes 15,500 [1] and the closing balance becomes 5,500 (net +2,500) [1]. [5] (b) 5,000 dollars, unchanged, because the money is still received within the forecast period [1] [1] Examiner insight: Show the changed inflow figure as well as the closing balance. The changed figure shows you moved the cash to the right month.

7. Advantage: the money is available at once, so bills can be paid on time [1] and the business can keep trading through the shortage [1]. Disadvantage: the bank charges interest on the overdrawn amount [1], which adds to costs [1]. (Accept another valid advantage or disadvantage, developed.) [4] Examiner insight: Each point needs a development to reach the second mark. “It costs money” is thinner than saying interest is charged and so reduces the cash left.

8. A = 6,200 - 6,900 = -700; B = 2,400 - 700 = 1,700 [1]. C = 1,700 and F = 1,900 (each is the previous closing balance) [1]. D = 5,600 + 200 = 5,800; E = 1,700 + 200 = 1,900 [1]. G = 7,000 + 600 = 7,600; H = 1,900 - 600 = 1,300 [1]. [4] Examiner insight: When working backwards, rearrange the formula first and then check the result against the neighbouring column.

9. Reason 1: it shows in advance when a shortage may occur [1], so the owner can arrange an overdraft or change plans in time [1]. Reason 2: it supports a request to a bank for a loan [1], because the bank can see whether the cafe could repay [1]. (Other valid reasons: it helps plan when to buy stock or equipment; it allows comparison with actual figures.) [4] Examiner insight: A reason alone earns less than a reason followed by what the owner can do with the information.

10. (a) July net is +3,000, so July closes at 12,000 [1]. August net is 21,000 - 37,500 = -16,500, so the closing balance is -4,500 [1]. [2] (b) The crane causes the shortage, with closing balances of -4,500 in August and -500 in September [1]. This is within the 6,000 overdraft limit, so an overdraft could cover it [1], but interest would be charged [1]. If the crane is delayed until October, closing balances are 12,000, 13,500 and 17,500 before the purchase, and 1,000 after it [1]. This avoids borrowing [1], but the slow crane stays for two more months and may limit work or break down [1]. Judgement: delay the crane to October, because it avoids interest and the cash is then available [1], while keeping the overdraft in reserve because the October closing balance of 1,000 is small [1]. [8] Examiner insight: A recommendation is stronger when it uses figures from the table and weighs at least one alternative. Choosing a method with no reason gains little.

11. (a) June closes at 3,500 [1]. July closes at 1,300 and August opens at 1,300; August net is 6,500 - 8,800 = -2,300, so the closing balance is -1,000 [1]. [2] (b) The forecast shortage is -1,000 at the end of August [1]. Proposal 1 brings 2,500 into August, so August closes at 1,500 and September at 500 [1]. Proposal 2 cuts August outflow by 1,500, so August closes at 500 and September at 500 [1]. Proposal 1 depends on the customer agreeing and may need a discount or upset the customer [1]. Proposal 2 risks the supplier relationship and future credit [1]. Judgement: Proposal 1, because the August balance is higher and it uses money already owed to Penwick [1]. [6] Examiner insight: Both proposals remove the shortage, so the reasons for choosing between them matter. State a clear choice, support it with figures and compare.

Where marks are usually lost

• Not carrying the closing balance forward as the next opening balance.
• Reversing inflow and outflow, giving net cash flow the wrong sign.
• Missing the minus sign on a negative closing balance.
• Reading the last month’s balance as the overdraft needed instead of the lowest balance.
• Treating a late payment as cash never received, when it only moves to another month.
• Describing the forecast as a profit forecast.
• Naming a remedy without linking it to the business in the case.
• Writing only advantages when the question asks you to justify or recommend.
• Giving a recommendation with no figures from the data.

Next steps

• Re-read the study guide for any question you missed.
• Use the revision notes for the formulas and the four remedies.
• Check progress on the printable checklist and the course hub.
• Try the free 10-minute diagnostics.
• Book a free trial class.

Frequently asked questions

What are common mistakes on cash flow forecast questions in IGCSE Business 0264? Students often fail to carry the closing balance forward as the next opening balance, reverse inflow and outflow so net cash flow has the wrong sign, and miss the minus sign on a negative closing balance. Describing the forecast as a profit forecast also loses marks.

How do you find the overdraft a business needs from a cash flow forecast? Look for the lowest closing balance across the months, not the last month’s balance. The overdraft must cover the largest shortfall in the period.

Does a late payment from a customer reduce total cash received? No. A late payment only moves the cash inflow to a later month; the total is reduced only if the debt is never paid.

Which syllabus section covers cash flow forecasts? Cash flow forecasts are section 5.2 of the Cambridge IGCSE Business 0264 syllabus.

Official syllabus

Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029, published by Cambridge University Press & Assessment (Cambridge International Education), section 5.2.