Business Studies Multiple Choice Question – 1 October 2021

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Stafford Roofing has cash flow problems. It needs to pay its employees their wages but is waiting for £24 300 from customers.

Which one of the following options is the most suitable source of finance to overcome this problem? 

Select ONE answer:

  1. Leasing
  2. Overdraft
  3. Debenture
  4. Bank loan

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

  1. Not correct – leasing is a long-term agreement to use expensive capital equipment and is not suitable for short term cash flow problems. 
  2. Correct – an overdraft is a short term, prior arrangement for a bank customer to be able to withdraw an agreed amount of money that is not in their current account. The overdraft arrangement means the wages can be paid before the money owed goes into the bank account. When customers pay their bills, the overdraft can be paid off and interest is only paid on the balance that is outstanding.
  3. Not correct – debentures are large long-term loans raised by public limited companies for major capital projects, which is not relevant to Stafford Roofing for paying its employees.
  4. Not correct – a bank loan would mean making a monthly repayment with interest over a longer period than Stafford Roofing need the money for. 

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