What is a cash flow emergency situation where a business does not have enough cash to pay its current liabilities?

What is a cash flow emergency situation where a business does not have enough cash to pay its current liabilities?

• A. Liquidity
• B. Cash flow forecast
• C. Liquidity crisis
• D. Assets

Answer: (C)

The essential idea is liquidity—the ability of a business to meet its short-term obligations using cash or assets that can be quickly converted to cash. When there isn’t enough cash to pay current liabilities, the business faces a liquidity crisis, a cash flow emergency that can threaten day-to-day operations. A cash flow forecast is a planning tool to estimate future cash movements, helping anticipate shortages, not the actual emergency itself. Assets are resources owned by the business, not the condition described.

The essential idea is liquidity—the ability of a business to meet its short-term obligations using cash or assets that can be quickly converted to cash. When there isn’t enough cash to pay current liabilities, the business faces a liquidity crisis, a cash flow emergency that can threaten day-to-day operations. A cash flow forecast is a planning tool to estimate future cash movements, helping anticipate shortages, not the actual emergency itself. Assets are resources owned by the business, not the condition described.