Why can lack of cash flow affect even a profitable venture?
Answer and explanation
Correct answer: Because cash is needed to pay daily expenses on time
Profit is an accounting result, whereas cash flow records the timing of money entering and leaving the business. A venture may record credit sales as revenue while customers pay later, but wages, rent, and suppliers may require immediate cash. Thus a profitable business can still face liquidity problems, making A correct.
Frequently asked questions
What is the correct answer to this question?
Because cash is needed to pay daily expenses on time
Why is this the correct answer?
Profit is an accounting result, whereas cash flow records the timing of money entering and leaving the business. A venture may record credit sales as revenue while customers pay later, but wages, rent, and suppliers may require immediate cash. Thus a profitable business can still face liquidity problems, making A correct.
Which subject and chapter does this question cover?
This is a Class 11 Business Studies question. Chapter: Sources of Business Finance. Topic: Concept, nature and importance of business finance.
