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Chapter 16: Statement of Cash Flows

Chapter Introduction​

Marie has been reviewing her restaurant's financial statements. "I see I made a profit, but my bank account doesn't seem to have that much money," she tells Monsieur Schneider. "How can I have profit but not cash?"

Monsieur Schneider explains that profit and cash are different. "The income statement shows profit, but it doesn't show cash flows. That's why you need a statement of cash flows—it shows where cash came from and where it went. In Luxembourg, this statement is required for many businesses and must follow PCN format."

Statement of Cash Flows shows:

  • Cash from operating activities
  • Cash from investing activities
  • Cash from financing activities
  • Net change in cash
  • Beginning and ending cash balances

In Luxembourg, the statement of cash flows is important because:

  • Required for many businesses
  • Shows cash flow health
  • Helps with cash management
  • PCN has specific format requirements
  • Required for RCS filing (for larger companies)

This chapter teaches you about the statement of cash flows, how to prepare it using the indirect method, how to classify activities, and Luxembourg-specific requirements including PCN format.

By the end of this chapter, you'll understand how to prepare a statement of cash flows and use it to analyze cash flow—just like Marie will learn to do for her restaurant.

Why It Matters​

The statement of cash flows is essential because:

  • Cash Flow Analysis: Shows actual cash movements
  • Liquidity Assessment: Helps evaluate ability to pay obligations
  • Investment Decisions: Shows cash available for investments
  • Financing Decisions: Shows cash from financing activities
  • Compliance: Required for many businesses

Luxembourg-Specific Importance:

  • Required for larger companies
  • Must follow PCN format
  • Helps with cash management
  • Required for RCS filing
  • Important for stakeholders

Understanding the statement of cash flows helps you:

  • Analyze cash flow health
  • Make informed decisions
  • Manage cash effectively
  • Comply with requirements
  • Communicate with stakeholders

Learning Objectives​

By the end of this chapter, you should be able to:

  1. Explain the purpose of the statement of cash flows
  2. Differentiate between operating, investing, and financing activities
  3. Prepare the statement of cash flows using the indirect method
  4. Prepare the completed statement of cash flows using the indirect method
  5. Use information from the statement of cash flows to prepare ratios to assess liquidity and solvency
  6. Prepare a completed statement of cash flows using the direct method (appendix)
  7. Understand Luxembourg cash flow statement requirements
  8. Explain Luxembourg PCN cash flow presentation