In the "All About You" feature, you read that many Canadians have big debt loads and negative cash flows. Assume you are a student enrolled in your second year of university and have just learned about the importance of managing cash flows and how to prepare a cash flow statement. You want to use your knowledge to prepare a cash budget for the upcoming year, September 1, 2013, to August 31, 2014. To help you prepare next year's cash budget, you have prepared a cash flow statement for the past year, September 1, 2012, to August 31, 2013.

MY CASH FLOW STATEMENT

Year Ended August 31, 2013

Operating Activities

Cash received from summer job...............................................................$ 8,000

Cash contribution from parents...................................................................3,600

Cash paid for rent, utilities, cable, Internet...................................................(4,000)

Cash paid for groceries............................................................... ...........(3,200)

Cash paid for clothes............................................................... .............(3,000)

Cash paid for gas, insurance, parking..........................................................(4,420)

Cash paid for miscellaneous.......................................................................(500)

Cash paid for interest on credit card.............................................................(180)

Cash used in operating activities...............................................................(3,700)

Investing Activities

Tuition and books................................................................................(7,000)

Laptop and printer...............................................................................(1,200)

Cash used in investing activities...............................................................(8,200)

Financing Activities

Student loan........................................................................................7,500

Loan from parents.................................................................................1,500

Purchases on credit card..........................................................................1,000

Cash provided from financing activities......................................................10,000

Decrease in cash.................................................................................(1,900)

Cash, September 1, 2012.........................................................................4,000

Cash, August 31, 2013.........................................................................$ 2,100

Instructions

(a) Comment on your cash position on August 31, 2013, compared with September 1, 2012.

(b) Prepare a cash flow forecast for September 1, 2013, to August 31, 2014, based on the following estimates and assumptions:

1. Tuition and books $7,500

2. Student loan $7,500

3. Your parents will contribute $4,000 toward your rent, utilities, cable, and Internet. You will not have to pay your parents back for this contribution.

4. Rent, utilities, cable, and Internet $4,000

5. Groceries $3,600

6. Gas, insurance, and parking $4,600

7. Clothes $3,000

8. Miscellaneous $500

9. You plan to pay off the amount owed on your credit card right away.

10. Your parents will lend you an additional $1,500 if you need it.

11. You are pretty sure that you will be rehired by the same company next summer; however, you do not think you will get a raise in pay.

(c) What is the amount of cash you forecast you will have at August 31, 2014?

(d) Will you need to borrow the additional $1,500 from your parents?

(e) Will you be able to pay off the $1,000 owed on your credit card? Should you try to do so?

(f) What actions may you be able to take to improve your cash flow?