O Level Business: Cash-flow forecasting and working capital (Cambridge 7115) – 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 section 5.2 (Cash-flow forecasting and working capital) of the Cambridge O Level Business Studies 7115 syllabus for examination in 2026. The businesses and figures are invented, and all amounts are in dollars. If a topic feels shaky, read the study guide or the revision notes first. The wider topic practice set mixes in other finance skills. See also the Cambridge O Level Business hub, the checklist and the free diagnostics.

Questions

1. (a) Define the term “cash-flow forecast”. [2] (b) Explain one reason why a bank might ask to see a cash-flow forecast before lending to a new business. [2]

2. Outline two reasons why cash is important to a small café. [4]

3. Juniper Tea Room has drawn up this forecast. March is complete.

	March	April	May
Opening balance	2,000	1,500	?
Cash received from customers	6,500	7,200	8,000
Ingredients	2,400	2,700	3,000
Wages	3,000	3,000	3,000
Rent	1,100	1,100	1,100
Other costs	500	600	700
Net cash flow	-500	?	?
Closing balance	1,500	?	?

Calculate the total payments for April, the April net cash flow, the April closing balance, the May opening balance and the May closing balance. [5]

4. The owner of Juniper Tea Room (question 3) decides to pay 4,200 in April for a new coffee machine. All other April and May figures stay the same. (a) Calculate the new closing balances for April and May. [2] (b) Explain what this means for the café. [2]

5. (a) Define “working capital”. [1] (b) Lantern Toys has inventories of 14,500, trade receivables of 6,200 and cash of 1,800. It owes suppliers 9,400 and has a bank overdraft of 4,300. Calculate its working capital. [2]

6. Explain why working capital is important to a bicycle shop. [4]

7. Wickham Pottery expects to be 1,800 short of cash next month and the month after, because it must buy clay before a large order is paid for. Explain two ways it could overcome this short-term problem. [6]

8. Skerry Print Shop expects to be 6,500 short of cash for two months, after which its cash recovers. It has two options. Option A: use a bank overdraft with a limit of 8,000. Interest is 1.5% per month on the amount used. Option B: ask its debtors to pay sooner. Two business customers owe it 7,000 in total and normally pay after 45 days. Together they provide 40% of its sales. Justify which option the shop should choose. [6]

9. Millbrook Joinery’s forecast for January to March is shown. Timber is paid for in the month it is delivered. Opening balance in January is 1,000.

	Jan	Feb	Mar
Cash received	9,000	9,500	10,000
Timber	4,000	4,200	4,400
Wages	4,000	4,000	4,000
Overheads	1,500	1,500	1,500

The timber supplier now allows Millbrook to pay one month after delivery, starting with the January delivery. Nothing else changes. (a) Calculate the revised closing balance for each month. [4] (b) State one benefit and one drawback of this arrangement for Millbrook. [2]

10. Gannet Bay Surf School is open all year but is busy in summer. Its forecast for four months is below. December payments include 3,000 for repairing a boat.

	Oct	Nov	Dec	Jan
Opening balance	5,000	?	?	?
Total cash inflows	4,000	2,500	2,000	6,000
Total cash outflows	3,600	3,600	6,600	3,800
Closing balance	?	?	?	?

(a) Calculate the closing balance for each month. [4] (b) Explain what the forecast shows about December. [3] (c) Recommend one action for the owner and justify it. [3]

11. In March, Coldharbour Furniture sells a set of furniture to a hotel for 18,000 on credit. The hotel will pay in 60 days. The materials and wages for the order, 11,000, are paid in March. Explain why the order adds to profit but may cause a cash problem. [4]

Answers

1. (a) A prediction of the cash expected to come into the business [1] and go out of it over future months, showing the expected balance [1]. (b) The bank wants to see that the business will have enough cash coming in [1] to make repayments and interest, so it can judge the risk of lending [1]. Examiner insight: A definition earns more credit when it mentions both inflows and outflows and the future. Writing only “a record of cash” describes past accounts, not a forecast.

2. Any two, each with a development: to pay wages on time [1] so staff stay and work [1]; to pay suppliers for ingredients [1] so supplies continue [1]. Paying rent and bills so the café can stay open is equally acceptable. Examiner insight: Each reason needs developing for the second mark. A list of “wages, rent, bills” with no consequence usually earns only the first mark of each pair.

3. April total payments = 2,700 + 3,000 + 1,100 + 600 = 7,400 [1]. April net cash flow = 7,200 - 7,400 = -200 [1]. April closing balance = 1,500 - 200 = 1,300 [1]. May opening balance = 1,300 [1]. May payments = 3,000 + 3,000 + 1,100 + 700 = 7,800, net cash flow = 8,000 - 7,800 = +200, closing balance = 1,300 + 200 = 1,500 [1]. Examiner insight: Show the net cash flow before the closing balance. A wrong figure early on is easier to trace when the working is visible.

4. (a) April closing balance = 1,300 - 4,200 = -2,900 [1]. May opens at -2,900, so May closing balance = -2,900 + 200 = -2,700 [1]. (b) The café would be 2,900 short of cash at the end of April [1] and still 2,700 short in May, so it could not pay all its bills without borrowing or other action [1]. Examiner insight: An amendment changes every later closing balance. Altering only April and leaving May at 1,500 is the usual slip on this kind of question.

5. (a) Current assets minus current liabilities (the money available to run the business day to day) [1]. (b) Current assets = 14,500 + 6,200 + 1,800 = 22,500; current liabilities = 9,400 + 4,300 = 13,700 [1]. Working capital = 22,500 - 13,700 = 8,800 [1]. Examiner insight: An overdraft is a current liability. Leaving it out, or counting it as an asset, gives a wrong answer even when the sums are right.

6. Any two reasons, each developed: it pays day-to-day costs such as wages and electricity [1], so the shop can keep trading [1]; it lets the shop buy bicycles and spare parts to sell [1], so customers find what they want and sales are not lost [1]. Also acceptable: too little risks being unable to pay suppliers (a liquidity problem), or too much leaves money idle. Examiner insight: Answers gain credit by applying the idea to a bicycle shop, for example holding stock of bikes and tyres, rather than writing about any business.

7. Any two ways, 3 marks each (identify, explain, drawback or link). Overdraft [1]: the bank lets the account go below zero up to a limit, so the clay can be bought [1], though interest is charged on the amount used [1]. Delaying payments to suppliers [1]: the pottery keeps cash for longer [1], but suppliers may refuse credit later or stop supplying [1]. Asking debtors to pay sooner, with the same three-part development, is also acceptable. Examiner insight: Two named methods with no explanation score little. Tie the method to a 1,800 gap that lasts two months, which suits a short-term fix.

8. Option A: cost of borrowing 6,500 for two months = 6,500 × 1.5% × 2 = 195 [1]. This is small compared with the shortfall, and the 8,000 limit covers the full 6,500 [1]. Option B: customers owing 7,000 could pay more than the shortfall [1], but these two customers provide 40% of sales, so pressing them risks losing a large share of revenue [1]. Judgement: choose the overdraft [1], because the problem is temporary, it costs about 195 and it does not risk the key customers [1]. Examiner insight: A justification needs both options weighed and a clear choice. Using the figures (195, 40%) shows application, and a judgement needs a reason to support it.

9. (a) Revised timber payments: January 0, February 4,000, March 4,200. January payments = 0 + 4,000 + 1,500 = 5,500, net = 9,000 - 5,500 = +3,500, closing = 1,000 + 3,500 = 4,500 [1]. February payments = 4,000 + 4,000 + 1,500 = 9,500, net = 0, closing 4,500 [1]. March payments = 4,200 + 4,000 + 1,500 = 9,700, net = +300, closing = 4,800 [1]. Method shown for the delay in payments [1]. (b) Benefit: cash stays in the business for a month longer, improving the balance [1]. Drawback: the supplier may later charge more or change terms, or the bills are only delayed, not removed [1]. Examiner insight: Move each timber payment one month later, and note that there is no January timber payment at all. Keeping the old timber figures in the same months is the usual error.

10. (a) October: 5,000 + 4,000 - 3,600 = 5,400 [1]. November: 5,400 + 2,500 - 3,600 = 4,300 [1]. December: 4,300 + 2,000 - 6,600 = -300 [1]. January: -300 + 6,000 - 3,800 = 1,900 [1]. (b) The balance is negative in December (-300) [1]. This is caused by low winter inflows and the one-off 3,000 boat repair [1]. The school could not pay all its bills in December without borrowing or delaying a payment [1]. (c) Arrange a small overdraft for December [1] because the shortfall is only 300 and lasts one month [1], and January shows a recovery to 1,900, so the overdraft can be repaid; the drawback is interest, but this is small [1]. Examiner insight: A recommendation is stronger when it quotes the figures, such as a 300 gap for one month. A large long-term loan for a 300 shortfall does not fit the data.

11. Profit on the order = 18,000 - 11,000 = 7,000 [1]. The business records this as profit when the sale is made [1]. In cash terms, 11,000 goes out in March but the 18,000 arrives only after 60 days [1], so the business may lack the cash to pay other wages and bills in the meantime, even though the order is profitable [1]. Examiner insight: State the numbers, then the timing difference. Answers that only say “profit is not cash” earn less than those that explain when the cash arrives.

Where marks are usually lost

• Not carrying the closing balance forward as the next opening balance.
• Changing one month in an amendment but not the months after it.
• Leaving out the working.
• Leaving an overdraft out of current liabilities.
• Naming a method such as an overdraft without explaining how it helps or what its drawback is.
• Recommending a long-term fix for a short, small shortfall, or the reverse.
• For “justify”, giving one side only or no final choice.

Frequently asked questions

Are these Cambridge O Level Business Studies 7115 past paper questions? No. They are eleven original questions written for Marlbridge on section 5.2, Cash-flow forecasting and working capital. Use them alongside the official past papers.

What is the most common slip when amending a cash-flow forecast? Changing one month but not the months after it. Each closing balance becomes the next opening balance, so a change in an early month alters every later closing balance.

Is an overdraft included in working capital calculations? Yes, as a current liability. Leaving it out, or counting it as an asset, gives a wrong working capital figure even when the arithmetic is right.

How do you choose a fix for a cash shortage in an exam answer? Match the fix to the size and length of the shortfall in the case and quote the figures. Recommending a large long-term loan for a small gap lasting one month, or the reverse, does not fit the problem.

How should you show your working in cash-flow questions? Show total inflows, total outflows and net cash flow before the closing balance. A wrong figure early on is easier to trace, and earn method marks, when the working is visible.

Next steps

• Review the revision notes.
• Reread the study guide.
• Go back to the course hub and tick off the checklist.
• Take one of the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge O Level Business Studies 7115, syllabus for examination in 2026, from Cambridge International, section 5.2.