Why is it important to consider cash flow while making a financial plan?
Answer and explanation
Correct answer: It helps understand the timing of income and payments
Cash flow records the timing of cash coming into and going out of the business. A business may show accounting profit and still face difficulty paying wages, suppliers, rent, or loan instalments if cash arrives later than payments are due. Cash-flow planning therefore supports liquidity and timely payment management. It does not remove expenses or measure product quality.
Frequently asked questions
What is the correct answer to this question?
It helps understand the timing of income and payments
Why is this the correct answer?
Cash flow records the timing of cash coming into and going out of the business. A business may show accounting profit and still face difficulty paying wages, suppliers, rent, or loan instalments if cash arrives later than payments are due. Cash-flow planning therefore supports liquidity and timely payment management. It does not remove expenses or measure product quality.
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.
