Lesson 2.3.2b

2.3.2b Working capital and the importance of cash Quiz: Pearson Edexcel Business, Unit 2

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

In partnership with Revision Ninja

Lesson 2.3.2b, Working capital and the importance of cash: 20 multiple choice questions for the Pearson Edexcel Business (9BS0), Unit 2: Managing business activities, written with Revision Ninja.

Host it live on the board and students join with a game code on their own devices, or revise alone with Free Play. The answers are revealed in the game.

Host this setFree Play

The 20 questions

  1. What is calculated by subtracting current liabilities from current assets?

    • Capital employed
    • Gross profit
    • Working capital
    • Net profit

  2. A business has current assets of £85,000 and current liabilities of £60,000. What is its working capital?

    • £85,000
    • £60,000
    • £145,000
    • £25,000

  3. What primary operational ability does holding sufficient cash provide a firm?

    • Eliminating fixed costs
    • Paying debts when due
    • Maximising gross profit
    • Avoiding corporation tax

  4. What is a key risk of holding too much stock?

    • Higher profit margins
    • Increased interest rates
    • Reduced liquidity
    • Lower trade payables

  5. Which action directly improves a business's overall working capital position?

    • Offering longer credit terms
    • Delaying cash sales
    • Purchasing more inventory
    • Collecting debts faster

  6. What occurs when a business has negative working capital?

    • Excess retained profit
    • Excess current assets
    • Excess current liabilities
    • Excess non-current assets

  7. Which asset most directly ties up working capital when payments are slow?

    • Trade receivables
    • Bank overdrafts
    • Trade payables
    • Retained profit

  8. A business reduces its stock by £30,000 and keeps all other items the same. What is the effect on working capital?

    • It falls by £30,000
    • It rises by £60,000
    • It rises by £30,000
    • It is unchanged

  9. What can happen to a profitable firm that runs out of cash?

    • Increased asset turnover
    • Higher dividend payouts
    • Forced closure
    • Lower tax rates

  10. A business has current assets of £120,000 and current liabilities of £150,000. What is its working capital?

    • -£30,000
    • -£270,000
    • £30,000
    • £270,000

  11. Which action directly increases a business net working capital?

    • Paying trade payables
    • Purchasing fixed assets
    • Taking long-term loans
    • Repaying bank overdrafts

  12. What is a potential risk of paying suppliers too quickly?

    • Increased customer debts
    • Higher trade payables
    • Drained cash reserves
    • Damaged credit rating

  13. What happens to cash flow if trade receivables rise while sales stay constant?

    • Gross profit falls
    • Cash inflows decrease
    • Cash inflows increase
    • Current liabilities rise

  14. Why might a profitable business still experience a cash shortage?

    • Excess share capital
    • Trade receivables unpaid
    • Low inventory levels
    • High retained profit

  15. A business has current assets of £50,000 and current liabilities of £20,000. It collects £10,000 of debtors and uses it to pay £10,000 of creditors. What is its working capital now?

    • £20,000
    • £50,000
    • £40,000
    • £30,000

  16. Which strategy encourages credit customers to settle invoices faster?

    • Extended credit terms
    • Higher trade payables
    • Increased inventory buffers
    • Early settlement discounts

  17. What can happen to a business with strong profits?

    • Suffer cash shortages
    • Eliminate trade payables
    • Avoid all debts
    • Guarantee high liquidity

  18. A business has current assets of £40,000 and current liabilities of £55,000. What is its working capital?

    • £15,000
    • £95,000
    • -£95,000
    • -£15,000

  19. Which transaction directly reduces a firm's working capital?

    • Buying machinery with overdraft
    • Collecting customer debts
    • Receiving long-term loan cash
    • Selling stock for cash

  20. What is the main benefit of reducing debtor days?

    • Higher trade payables
    • Increased inventory costs
    • Lower profit margins
    • Faster cash collection

All Pearson Edexcel Business quizzes