- Mark Scheme /

Question Answer Marks AO Element Notes Guidance

1 Calculate working capital. Show 2 $ sign not required but

your working. units (m) must be
included to gain full
Correct answer: $60 million or 60m
marks.
[2]
Correct method but incorrect
answer: e.g.
Current assets − current liabilities
[1] OR $300m − $240m [1]
If correct answer given, but with no
workings shown, award 2 marks.
Award one mark if $60 m is written
as part of the answer but is not
given as the final answer.
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Question Answer Marks AO Element Notes Guidance

2 Outline, with reference to D2G, 4 To use words from the

the difference between profit and stem as application the
cash. reference must be
appropriate (i.e. make
Award 1 mark for relevant
sense) in relation to the
knowledge of profit and/or cash
point being made.
(max 1).
The following words are
Award 1 mark for showing
likely to be appropriate
understanding of difference
for this question:
between profit and cash (max 1).
• Driving school / teach
people to drive or related
Award 1 mark for each relevant
words such as lessons,
reference to this business (max 2).
learners • (New)
car/vehicle or related
Points might include: words such as petrol/fuel
• $2000 profit • $12 000
• Cash is needed to pay day-to-day (gross profit) • $20 000
costs [k] such as fuel for the car (revenue) • 3 years •
[app] whereas profit is necessary Business cycle
for the long-term survival [k] of his
driving school [app] • Cash may be Other appropriate
received beforehand [k] so the examples in context can
profit of $2000 [app] will not still be credited.
increase until later [k] when the
To award four marks
driving lessons have taken place
candidates must include
[app] • D2G may offer credit to
a clear reference to the
customers [k] for the driving which
difference between cash
is counted in profit of $2000 [app]
and profit.
but the cash is not yet received [k]
until the lesson takes place [app] •
Profit is a source of finance [k] •
Profit is a measure of success [k] •
Profit is a reward for risk-taking [k]
• Cash is necessary to help avoid
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Question Answer Marks AO Element Notes Guidance

cash flow problems [k]

Other appropriate responses should
also be credited.

3 Identify one cash inflow and one 2 Only award the first
cash outflow a business might response given for cash
have. inflow/outflow.
Award 1 mark per cash
inflow/outflow.
Cash inflows might include:
• Money from cash/credit sales, sale
of fixed assets, money received
from bank loan / overdraft / other
sources of finance
Cash outflows might include:
• Payments to employees, rent paid,
interest payments, payments to
suppliers, tax payments, dividend
payments
Other appropriate responses should
also be credited.
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Question Answer Marks AO Element Notes Guidance

4 Explain how the following 6 Note: To use words from

changes might affect Asmaa’s the stem as application,
cash-flow forecast. the reference must be
appropriate (i.e. make
Award 1 mark for identification of
sense) in relation to the
each relevant effect [max 2].
point being made.
Award 1 mark for each relevant
The following words are
reference made to this business
likely to be appropriate
[max 2].
for this question: • Car
Award 1 mark for each relevant repair (business) •
explanation [max 2]. 3/full-time employees •
Well-motivated /
Points might include: motivated employees •
Closure of competitors: Correct use of
information in the
• Could increase customers/demand table.
[k] for the car repair business [app]
increasing cash inflows [an] • Could Other appropriate
increase prices [k] which may lead examples in context can
to higher cash inflow [an] than $40 still be credited.
000 in March [app]
Increase in minimum wage:
• May increase costs [k] to her 3
employees [app] which will
increase cash outflow [an] • No
effect [k] as may already pay them
a higher amount [an] as she wants
to keep them well-motivated [app]

Other appropriate responses should

also be credited.
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Question Answer Marks AO Element Notes Guidance

5 Define ‘working capital’. 2 Do not credit examples.

Award2marksforafuldefinition.Award1markforapartialdefinition.
Amountofcapitalavailabletoabusinesstopayitsday-to-day
expenses/costs [2]
ORThecapitalneededtofinancethedaytodayrunningexpenses(and
pay the short-term debts of the
business) [2]
OR Currentassets – currentliabilities [2]
Partialdefinitione.g.fundsusedtobuyinventory[1]
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Question Answer Marks AO Element Notes Guidance

6 Explain two possible effects on 6 Note: To use words from

NPX’s cash-flow forecast of the stem as application,
introducing the new technology. the reference must be
appropriate (i.e. make
sense) in relation to the
Award 1 mark for identification of
point being made.
each relevant effect (max 2).
The following words are
Award 1 mark for each relevant
likely to be appropriate
reference made to this business
for this question:
(max 2).
• $40 000 • 35 / 60
Award 1 mark for each relevant
full-time (employees) /
explanation (max 2.)
redundant • Correct use
Points might include: of data e.g. $110 000
cash outflow in
• Higher repayment costs / initial September • Online
cost to buy machinery [k] which retailer • Warehouse •
increases cash outflow [an] as need Selecting and packing
to pay $40 000 [app] • Reduce wage items • To improve
costs [k] as need 35 fewer productivity •
employees [app] lowering cash Internal/external source
outflow [an] • Increased training of finance
costs [k] increasing cash outflows
[an] • Possible redundancy Other appropriate
payments [k] increasing examples in context can
cashoutflow [an] • Sell old still be credited.
machinery / use an external source
For analysis answers
of finance [k] which would generate
must focus on the impact
a cash inflow [an]
on cash outflow or cash
Other appropriate responses should inflow.
also be credited.
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Question Answer Marks AO Element Notes Guidance

7 Define ‘opening balance’. 2

Award 2 marks for a full definition.
Award 1 mark for a partial
definition.
Amount of cash held by a business
at the start of the month / trading
period [2]
Partial definition e.g. cash that a
business has [1]
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Question Answer Marks AO Element Notes Guidance

8 Do you think making a profit is 6 This is a general question

more important for a growing so there are nomarks for
business than managing cash application.
flow? Justify your answer.
For both evaluation
Award up to 2 marks for marks response mustbe
identification of relevant points. linked to a growing
business.
Award up to 2 marks for relevant
development of points. Do not award answers
which state profit isused
Award 2 marks for justified
to pay day-to-day costs.
decision as to whether making a
profit is more important for a
growing business than managing Do not award definitions
cash flow. of profit orcashflow as
this does not answer
Points might include:
thequestion.
Profit:
• Main objective is to make a
profit [k] without it owners
will question point of business
[an]
• A source of finance [k] which
can allow for expansion
[an]
• A measure of success [k]
• Reward for risk taking [k]
• Important for long-term
survival [k]
• Can help attract investors
[k]
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Question Answer Marks AO Element Notes Guidance

Cash flow:
• Need cash to pay day-to-day
costs [k] such as suppliers,
otherwise might not have
sufficient materials to
continue production [an]
• Helps avoid cash flow
problems [k]
• A negative cash flow means
business is receiving less cash
than it is spending [k]
• If negative might mean
business is insolvent / forced
into liquidation [k]whether
business makes a profit or not
[an]
• Sales may be on credit [k] so
even if making a profit may
not receive money until later
[an] so need cash to pay other
costs [an]
• Less likely to need overdraft
[k] which could add to cash
outflows /higher expenses
[an]
Other appropriate responses should
also be credited.
Justification might include:
• The main objective for most
private sector businesses is
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Question Answer Marks AO Element Notes Guidance

making a profit[k] without it

owners will question point of
business [an]. However, a
business needs to manage its
cash flow to make sure it can
pay day-today costs [k] such
as suppliers otherwise it might
not have sufficient materials
to continue production [an]. I
think cash flow is more
important as a business can
continue for a while without
making a profit, but it will
find it very difficult to survive
without cash [eval] especially
at a time when a business is
growing as it will need to be
in a position to purchase
additional items. [eval]

9 Calculate the values of X and Y. 2 Answers must be shown

as negative values to be
credited.
Award one mark for each correct
calculation.
X: (300)
Y: (400)
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Question Answer Marks AO Element Notes Guidance

10 Explain two ways SMR could 6 To use words from the

overcome its cash-flow problems. stem as application the
reference must be
appropriate (make sense)
Award one mark for identification
in relation to the point
of each relevant way to overcome
being made.
cash flow problems (max 2).
The following words are
Award one mark for each relevant
likely to be appropriate
reference made to this business
for this question:
(max 2).
• Batch production
Award one mark for each relevant
explanation (max 2). • Snack/food business
Points might include: • Sports events
• Negotiate longer credit terms with • 3 / part-time
suppliers / delay payment of bills (employees)
[k] for ingredients for snacks [app]
• Correct use of data from
to keep cash in the business for
table 3.1 such as closing
longer [an]
balance $(1200) in June
• Overdraft [k] would allow the Other appropriate
business to have a negative cash examples can still be
balance for a while [an] for this credited.
snack/food business [app]
Note: The analysis
• Asking customers to pay earlier / should focus on effect on
offering discounts to encourage cash inflow or
quicker payments / insisting on cash outflow.
sales [k] to get over $900 in May
Candidates can use the
[app] would allow business to
same analysis for both
receive cash inflow sooner [an]
answers where
• Bank loan [k] as this would appropriate.
increase cash inflow [an]
• Reduce level of stock bought [k]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

• Increase number of customers [k]

could increase cash inflows [an]
• Delay / cancel purchases of capital
equipment / sell surplus noncurrent
assets [k]
• Find cheaper suppliers [k]
Other appropriate responses should
also be credited
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Question Answer Marks AO Element Notes Guidance

11 State four reasons why a business 4 Only award the first four
might have cash flow problems. responses given.

Award 1 mark per reason.

Points might include:
• Lack of demand/economic
downturn/seasonal demand • Poor
cash flow management/not prepared
a cash flow forecast • Unable to get
a bank loan/overdraft • High level
of trade receivables/allowing
customers (too much) credit • Not
able to purchase materials on
credit/pay suppliers too soon •
Increase in/higher fixed costs or
examples such as rent costs too high
• Increase in/higher variable costs
or examples such as cost of wages
too high • High level of
inventory/holding too much
stock/buy too much stock •
Overtrading/expanding too quickly
• Unexpected changes e.g. machine
breakdown/loss of key employees/
loss of key customer (allow only
once) • Inaccurate financial
information
Other appropriate responses should
also be credited.
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Question Answer Marks AO Element Notes Guidance

12 Do you think asking customers to 6 Analysis and Evaluation

pay more quickly is the best way must focus on whether
for a small business to improve asking customers to pay
its cash flow? Justify your more quickly is the best
answer. way for a small business
to improve its cash flow.
Award up to two marks for
identification of relevant
points/alternative methods. For both evaluation
marks justification must
Award up to two marks for relevant
clearly relate to a small
development of points.
business.
Award two marks for justified
decision as to whether asking
customers to pay more quickly is
the best way for a small business to
improve its cash-flow.
Points might include:
• Asking customers to pay more
quickly means:
• Less/no need to borrow [k] so no
interest paid so does not increase
cash outflows [an]
• Customers may be unable or
unwilling to pay more quickly [k]
so may look for alternative
suppliers so reducing cash inflows
[an]
Other ways of improving cash-flow
could be discussed:
• Delay payment to
suppliers/change terms [k] which
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Question Answer Marks AO Element Notes Guidance

delays cash outflows [an] but

suppliers may stop providing
products may not have enough
stock leading to fewer sales so
lowering cash inflows [an]
• Selling (unwanted) assets [k]
which generates cash inflow [an]

• Reduce amount of inventory

ordered/held [k] which reduces cash
outflows [an]
• Debt factoring [k] which will
provide immediate cash [an] but
does not receive full amount of
money owed by customers so
overall cash inflow is less [an]
• Overdraft/short term loan [k] as
will inject more cash into the
business [an] but interest must be
paid/loan repaid
Accept practical solutions such as:

• Lower fixed costs [k]

• Buy cheaper materials/cut
unnecessary expenditure [k]
• Sell more products/increase cash
sales [k]
Justification might include:
• As the business is small, it may
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Question Answer Marks AO Element Notes Guidance

be better to ask suppliers for more

time to pay as the business may not
have many customers so does not
want to risk losing them by asking
them to pay more quickly [eval]
[eval].
Other appropriate responses should
also be credited.

13 Calculate X and Y 2 $ sign is not required.

Award one mark for each correct
calculation.
X: 400
Y: 2400

14 Calculate the following values: X 2

and Y
Application [2 × 1] award 1 mark
for each correct answer.
X 20 (20 000)
Y 40 (40 000)
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Question Answer Marks AO Element Notes Guidance

15 Calculate the values of W, X, Y 4 OFR can apply as error

and Z. in W will have
Application [4 × 1] – award 1 mark implications for value of
for each correct value X and Z (max 3).
W 28 000 Subsequent answers must
X 2000 be consistent throughout.
Y (4000) OR –4000 NO OFR for Y
Z (2000) OR –2000

16 Calculate the following values 4 Note: answers can be

shown on the cash flow forecast. written on the cash flow
forecast or in the space
provided
Application [4] award one mark per
correct answer Do not use OFR as no
wage calculation is
W: 5 or 5000
required.
X: 75 or 75 000
Y: 5 or 5000
Z: (10) or (10 000)
Note: Z must be shown as a
negative number to be credited.
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Question Answer Marks AO Element Notes Guidance

17 Identify and explain two ways 6 Application marks may

(other than reducing inventory) be awarded for
that QAC could use to improve appropriate use of the
its cash flow position. following: correct use of
data in the table, $10m,
Knowledge [2 × 1] award 1 mark
batch or flow production,
for each relevant way identified
reference to soap or
Application [2 × 1] – award 1 mark polish, 70 products,
for each way if relevant reference cleaning products,
made to this business Analysis [2 increased demand for X
× 1] – award 1 mark for each and Y
relevant explanation
Relevant points might include:
• Ask debtors to pay quicker/ reduce
credit terms [k] if they pay sooner
this will increase cash inflows [an]
• Delay purchases [k] could decide
not to buy as much equipment [app]
so keeping cash in the business [an]
• Delay inventory payments [k] as
$1 20 000 paid in May [app]
lowering cash outflow [an] •
Arrange a short term loan /
overdraft [k] • Lower fixed costs
[k] • Buy cheaper materials [k] •
Sell (unwanted) non-current assets
[k] so releasing cash tied up in the
business [an] • Delay investment/
expansion plans [k] of $10m [app]
Accept practical suggestions for
example: • Reduce range of
products sold [k] this would reduce
the cost of materials needed [app];
• Sell more products [k]
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Question Answer Marks AO Element Notes Guidance

18 Do you think the manager is right 6

to be worried about TKF’s cash
flow position? Justify your
answer.
Knowledge [1] – award up to 1
mark for identification of relevant
points
Application [1] – award 1 mark if
relevant reference made to this
business
Analysis [2] – award up to 2 marks
for relevant development of point
(s)
Evaluation [2] – justified decision
made as to whether TKF is right to
be worried about its cash flow
position
Relevant points might include: •
Closing balance is positive for two
of the three months [k] so can meet
all expenditure/bills [an] • Cannot
cover outflows in January [k] as net
cash flow is (5)/opening balance
only three [app] so might damage
relationship with suppliers of not
able to pay [an] • Inflows vary per
month [k] so no guarantee have
money to pay costs [an] so suppliers
might be reluctant to supply wood
[app] so cannot meet all its orders
[an] • Cash inflow decreases in
January [k] by 15 [app + an] •
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Question Answer Marks AO Element Notes Guidance

Cannot predict/rely on regular

orders [k] using job production
[app] • May be a temporary
problem [k] as only have three
months data

19 Identify and explain two possible 4 Application marks may

reasons why working capital is be awarded for
important to Alex and Raul’s appropriate use of the
business. following: unlimited
liability (as key feature
Knowledge [2] – award 1 mark for
of partnership), use of
each relevant reason [max 2].
data in table 2, bicycles
Application [2 × 1] – award 1 mark (or relevant examples
for each explanation in context. such as bike parts, tyres,
saddles, gears, tools), not
Points might include: given bank loan, repairs,
• Necessary to finance the day to small profit.
day activities (only once) e.g. Pay
suppliers [k] for bike parts [app] •
Know they are solvent/can meet
short-term debts/avoid cash flow
problems [k] • Too much working
capital could mean not making best
use of resources [k] which could
negatively impact on expansion
plans [app] • Can take advantage of
special offers from suppliers [k] •
Can help attract potential
investors/support loan applications
[k] to help expand the business
[app] • Cover unexpected costs
[k].
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Question Answer Marks AO Element Notes Guidance

20 Calculate the working capital. 2 $ sign not needed.

Good Application [2]: 500.
Some application [1] e.g. Current
assets – current liabilities OR
2500–2000.

21 Explain why managing his cash 4

flow will be important for Tebo’s
business.
Knowledge [2] award up to 2 marks
for identification of
points/knowledge of cash flow
Application [2] award up to 2 marks
for relevant explanation in context
of Tebo’s business
Relevant points might include:
• Cash flow needed to pay its day
to day expenses [k] • Business
could fail due to lack of cash [k] if
used all his savings to buy franchise
[app] • Help reduce need for finance
[k] for a new business [app] • Able
to predict/plan for cash flow
problems [k] • Help a business get
a loan [k] Application marks may
be awarded for appropriate use of
the following: car repair, no
management experience, $15000/all
his savings, new business, FIXIT
franchise.
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Question Answer Marks AO Element Notes Guidance

22 Identify and explain two reasons 4

why cash flow is important to
Bowland.
Knowledge [2 × 1] – award 1 mark
for each relevant reason [max 2]
Application [2 × 1] – award 1 mark
for each relevant explanation in
context of this business
Relevant points might include:
• Need to pay day to day expenses
such as suppliers [k] without parts
production stops [app] • If negative
might be forced into liquidation [k]
despite its profits going up [app] •
Helps avoid cash flow problems [k]
while wait for trade receivables to
be paid [app] • A negative cash
flow means the business is
receiving less cash than it is
spending [k] • Help support finance
requests [k] especially as cash flow
is negative [app] Application marks
may be awarded for appropriate use
of the following: quality,
successful, new equipment,
bicycles, components or suppliers,
trade receivables increased
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Question Answer Marks AO Element Notes Guidance

23 Identify and explain two ways in 6

which Bowland could improve its
cash flow.
Knowledge [2 × 1] – identification
of relevant way [max 2]
Application [2 × 1] – award 1 mark
for each way if relevant reference
made to this business
Analysis [2 × 1] – award 1 mark for
each relevant explanation
Relevant points might include: •
Arrange a short term loan /
overdraft [k] giving them access to
cash [an] so can to pay its suppliers
[app] • Ask debtors to pay quicker
[k] as trade receivables increased
[app] this will increase cash inflows
[an] • Delay purchases [k] could
decide not to buy as much new
equipment [app] so keeping cash in
the business [an] • Delay payments
for inventory [k] of components
[app] so they have less cash
outflows [an] • Reduce level of
inventory [k] • Sell unwanted
non-current assets [k] so releasing
cash tied up in the business [an]
Can accept practical examples, e.g.
find cheaper supplier
Do not accept answers such as
‘increase cash inflow/reduce
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

outflow’, increase sales, cutting

costs, raise prices on own as too
vague
Application marks may be awarded
for appropriate use of the following:
quality improved, successful, new
equipment, bicycles, components
or suppliers, trade receivables
increased
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Question Answer Marks AO Element Notes Guidance

24 Identify and explain two benefits 4

to HPT of having a cash flow
forecast. You should refer to the
Table in your answer.
Knowledge [2 × 1] – award 1 mark
for each relevant benefit identified

Application [2 × 1] – award 1 mark

for each relevant explanation in
context
Relevant points might include:
• Arrange a short term loan [k] or
arrange an overdraft [k] as in each
month the closing balance is
negative [app] • Can identify
possible causes of cash flow
problems [k] e.g. as in month 2,
sales are $20 000 lower than the
other two months [app] • Help
manage cash flow better [k] as
could try to reduce amount spent
on packaging to less than $20 000
per month [app] • Supports a loan
application [k] as shows that the
cash flow is improving slowly [app]
• Shows how much is spent each
month [k].
Note: Do not reward a definition of
cash flow forecast as the question
asks for the benefits
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Question Answer Marks AO Element Notes Guidance

25 Identify and explain two possible 6

reasons why Anyshade has cash
flow problems.
Knowledge [2 × 1] – award 1 mark
for each relevant reason identified.

Application [2 × 1] – award 1 mark

if relevant reference made to data.

Analysis [2 × 1] – award 1 mark for

each relevant explanation
(calculations not necessary).
For each reason: maximum 3 marks
[1k + 1ap + 1an]
Relevant points might include:
• High fixed costs [k] of $70,000 is
over half of the monthly cash
outflows [app]. These must be paid
whether sales are made or not [an]
• Sell stock on credit [k] which
means that cash payments are
delayed [an] as in Aug/Sep over
half the cash inflow is from credit
sales [app] • Opening balance is
negative to start with [k] with a
value of ($9 000) [app] • Poor cash
flow management [k] • Spend too
much money [k] • Wages fluctuate
each month [k]
Note: Can accept comments based
on general trend e.g. cash sales have
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Question Answer Marks AO Element Notes Guidance

fallen [k]..

26 Calculate the following. 2

Application [2 × 1] award 1 mark
for each correct value. $ symbol not
required but Y must be shown as a
negative value
X = $180 000; Y= (10 000)
Note: Answers should be in
millions but accept 180 000 and (10
000) due to question layout.

[Total: 104]