Question

act4 Describe the main cash inflow and outflows that a business might experience and how could that business improve its cash flow to ensure sufficient funds are available to meet its taxation obligations. (120–180 words)

Answer 1

The main cash flow a business might experience is cash collected from sale/ accounts receivable and payments made to supplier/purchases.

when a company records a sale the revenue is recognized on the income statement, but the company may not receive cash the same time, so the company will end up earning a profit on the income statement and be paying income taxes on it, even though no cash would have been exchanged as accounts receivable pay at some later date.

The best way to ensure sufficient funds available to meet its taxation is by collecting payment from accounts receivable as early as possible, by allowing them less days for credit and by delaying payments to it suppliers as much as possible so that funds are available.

the general pratice should be to collect accounts receivable as soon as possible and taking additonal 20 days to make payment to suppliers, this will help us maintain sufficient funds to meet tax obligations.