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CIPS Exam L4M2 Topic 2 Question 50 Discussion

Actual exam question for CIPS's L4M2 exam
Question #: 50
Topic #: 2
[All L4M2 Questions]

Which of the following always impact negatively on a company's cash flow? Select TWO that ap-ply

Show Suggested Answer Hide Answer
Suggested Answer: B, D

To answer this question, candidates are required to remember the cash flow cycle and cost entries as well as the impact of their timing on a business.

Source: https://cfoperspective.com/free-your-cash-trapped-in-the-cash-conversion-cycle/

Shorter payment term and more inventory are likely to have negative impact on the cash flow be-cause the buyer has to pay sooner and greater.

'Customers agree to pay immediately' will increase the organisation's bank account sooner.

Depreciation has no impact on cash flow as it is only listed in Profit and Loss statement.

Increasing revenue may have negative or positive impact on cash flow, depending on the real situation.


LO 1, AC 1.4

by Daniela at Nov 17, 2024, 11:53 AM

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Detra
This is a real head-scratcher. I feel like I'm trying to balance the books of Schrödinger's company here.
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Tammy
2 days ago
I bet the answer involves the classic 'cash is king' principle. Let's see what the other candidates come up with.
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Brice
20 days ago
But what about D and E? If suppliers shorten their payment period and customers pay immediately, wouldn't that improve cash flow?
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Samira
21 days ago
Wait, immediate payment from cusSamiraers is a bad thing? I'm so confused, this question is messing with my head!
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Candida
25 days ago
Definitely more inventory and depreciation of fixed assets - those are cash outflows. The other options seem a bit tricky.
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Edna
30 days ago
Hmm, increasing revenue should be a good thing for cash flow, right? I'm going to have to think this one through.
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Ilda
2 days ago
Yes, increasing revenue is generally a positive for cash flow, but it's important to consider other factors as well.
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Mee
7 days ago
Depreciation of fixed asset and supplier shortening their payment period
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Daniel
10 days ago
More inventory and depreciation of fixed asset can negatively impact cash flow.
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Maryann
12 days ago
Increasing revenue and customers agreeing to pay immediately are both good for cash flow.
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Larae
23 days ago
Supplier shortening their payment period and more inventory
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Denny
24 days ago
More inventory and depreciation of fixed asset
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Laila
25 days ago
Increasing revenue and customers agreeing to pay immediately
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Dannie
1 months ago
I agree with Carmen. More inventory ties up cash and depreciation reduces the value of assets.
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Carmen
1 months ago
I think B and C always impact negatively on cash flow.
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