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CIPS L4M2 Exam - 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

AIncreasing revenue

BMore inventory

CDepreciation of fixed asset

DSupplier shortens their payment period

ECustomers agree to pay immediately

Show Suggested 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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Mose

7 months ago

Wait, customers paying immediately? How is that bad?

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Lashawn

8 months ago

Supplier shortening payment terms? That's a cash flow killer!

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Mona

8 months ago

Depreciation doesn't impact cash flow directly, just accounting.

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Georgene

8 months ago

I disagree, increasing revenue usually helps cash flow!

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Carline

8 months ago

More inventory definitely ties up cash.

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Lindsay

9 months ago

I feel like customers paying immediately would actually help cash flow, so I’m leaning towards more inventory and the supplier issue.

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Thora

9 months ago

Supplier shortening their payment period definitely sounds like it would hurt cash flow, but I wonder if increasing revenue could offset that.

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Jovita

9 months ago

I remember a practice question where depreciation was mentioned, but I can't recall if it directly affects cash flow negatively.

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Cory

9 months ago

I think more inventory could tie up cash, but I'm not sure if it always has a negative impact.

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Tequila

9 months ago

I've got a good strategy here. I'll eliminate the options that improve cash flow and focus on the ones that would decrease it, like more inventory and supplier shortening their payment period.

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Alyce

9 months ago

I'm a bit confused. Wouldn't more inventory and depreciation of fixed assets also negatively impact cash flow? I'll need to double-check my understanding.

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Heike

9 months ago

Okay, I think I've got it. Increasing revenue and customers paying immediately would both improve cash flow, so those can't be the right answers.

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France

9 months ago

Hmm, I'm not sure about this one. I'll need to think through how each of these options affects cash flow.

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Geoffrey

9 months ago

This one seems pretty straightforward. I'll focus on the factors that negatively impact cash flow.

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Detra

2 years ago

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 years 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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Huey

1 year ago

B) More inventory

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Coleen

2 years ago

A) Increasing revenue

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Tonette

2 years ago

B) More inventory

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Noah

2 years ago

A) Increasing revenue

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Brice

2 years 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

2 years 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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Julieta

2 years ago

D) Supplier shortens their payment period

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Lorrine

2 years ago

C) Depreciation of fixed asset

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Val

2 years ago

B) More inventory

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Jody

2 years ago

A) Increasing revenue

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Candida

2 years 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

2 years 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 years 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

2 years ago

Depreciation of fixed asset and supplier shortening their payment period

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Daniel

2 years ago

More inventory and depreciation of fixed asset can negatively impact cash flow.

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Maryann

2 years ago

Increasing revenue and customers agreeing to pay immediately are both good for cash flow.

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Larae

2 years ago

Supplier shortening their payment period and more inventory

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Denny

2 years ago

More inventory and depreciation of fixed asset

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Laila

2 years ago

Increasing revenue and customers agreeing to pay immediately

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Dannie

2 years ago

I agree with Carmen. More inventory ties up cash and depreciation reduces the value of assets.

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Carmen

2 years ago

I think B and C always impact negatively on cash flow.

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