Why is understanding cash flow important in a small venture?
Answer and explanation
Correct answer: Because timely payments and daily operations may be affected without it
Cash flow tracks the timing of money entering and leaving the business. A venture may show accounting profit but still lack cash to pay suppliers, wages, rent, or loan instalments when they are due. Monitoring cash flow helps plan working capital and prevents operational disruption; sales alone do not show available cash.
Frequently asked questions
What is the correct answer to this question?
Because timely payments and daily operations may be affected without it
Why is this the correct answer?
Cash flow tracks the timing of money entering and leaving the business. A venture may show accounting profit but still lack cash to pay suppliers, wages, rent, or loan instalments when they are due. Monitoring cash flow helps plan working capital and prevents operational disruption; sales alone do not show available cash.
Which subject and chapter does this question cover?
This is a Class 12 Business Studies question. Chapter: Financial Management. Topic: Working capital.
