Lesson 2.3.1b

2.3.1b Profit versus cash and improving profitability Quiz: Pearson Edexcel Business, Unit 2

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson 2.3.1b, Profit versus cash and improving profitability: 20 multiple choice questions for the Pearson Edexcel Business (9BS0), Unit 2: Managing business activities, written with Revision Ninja.

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The 20 questions

  1. Why can a profitable business experience poor cash flow?

    • Credit sales timing
    • Zero interest rates
    • High profit margins
    • Low tax rates

  2. Which outflow reduces cash immediately without reducing profit by the same amount?

    • Utility bill payment
    • Capital asset purchase
    • Employee wage payment
    • Interest cost payment

  3. What causes a business to make a profit while its cash balance falls?

    • Increased cash sales
    • Uncollected credit sales
    • Lower tax rates
    • Reduced overhead costs

  4. Which action directly improves a business's gross profit margin?

    • Extending credit terms
    • Offering price discounts
    • Increasing office rent
    • Lowering material costs

  5. How can a business increase profit when demand for its product is price inelastic?

    • Raising selling prices
    • Extending customer credit
    • Lowering selling prices
    • Increasing marketing spending

  6. Which action improves operating profit margins without requiring an increase in sales volume?

    • Extending customer credit
    • Increasing stock levels
    • Lowering selling prices
    • Cutting fixed overheads

  7. What primary factor causes a highly profitable business to experience cash flow problems?

    • Delayed customer payments
    • Increased gross margin
    • Reduced interest rates
    • High sales volumes

  8. A business records a £20,000 credit sale. What is the immediate effect on cash?

    • No cash change
    • Increases by £20,000
    • Increases by £10,000
    • Decreases by £20,000

  9. Which action provides the quickest improvement to a manufacturer's gross profit margin?

    • Launching rebranding campaigns
    • Negotiating cheaper inputs
    • Hiring additional staff
    • Building new premises

  10. Which expense reduces reported profit but has no impact on cash flow?

    • Staff wages
    • Raw materials
    • Depreciation
    • Office rent

  11. A business has a profit of £50,000 and depreciation of £12,000 for the year. Ignoring other items, what is the approximate cash generated from operations?

    • £50,000
    • £38,000
    • £62,000
    • £12,000

  12. Why might a profitable business lack liquidity?

    • Cash tied in stock
    • Low credit sales
    • Excess share capital
    • High operating profit

  13. Which decision directly increases operating profitability by reducing fixed overhead costs?

    • Reducing customer credit
    • Increasing unit prices
    • Purchasing excess stock
    • Renegotiating office rent

  14. A firm increases its selling price by 5% and sells 10,000 units at £20. What is the increase in revenue, assuming volume is unchanged?

    • £20,000
    • £1,000
    • £5,000
    • £10,000

  15. What risk does a business face when raising prices to improve profitability?

    • Lower tax obligations
    • Falling sales volume
    • Increased fixed overheads
    • Higher material costs

  16. Which business decision most directly widens the gap between profit and cash?

    • Longer customer credit
    • Paying suppliers instantly
    • Selling fixed assets
    • Issuing new shares

  17. An £8,000 credit sale is made. What happens to profit and cash immediately?

    • Profit rises, cash unchanged
    • Both remain unchanged
    • Cash rises, profit unchanged
    • Both rise together

  18. How can a business with high sales but low profits best improve profitability?

    • Extending credit terms
    • Lowering product prices
    • Cutting administrative overheads
    • Increasing sales volume

  19. A business sells 1,000 units. A £5 per unit cut in cost of sales is achieved. What is the extra gross profit?

    • £1,000
    • £50,000
    • £500
    • £5,000

  20. What term describes a rapidly growing business running out of cash despite making profits?

    • Insolvency
    • Profit warning
    • Diversification
    • Overtrading

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