It is common to read news reports 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, 2021, to August 31, 2022. To help you prepare next year’s cash budget, you have prepared a cash flow statement for the past year, September 1, 2020, to August 31, 2021.

My Cash Flow Statement
Year Ended August 31, 2021

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, 2020 ................................................ 4,000
Cash, August 31, 2021 ................................................... $ 2,100

Instructions

a. Comment on your cash position on August 31, 2021, compared with September 1, 2020.

b. Prepare a cash flow forecast for September 1, 2021, to August 31, 2022, 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, 2022?

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 fl ow?