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Chapter 1 Solutions

Multiple Choice Questions - Solutions​

  1. Which of the following best describes financial accounting?

    • Answer: b) Financial accounting follows standardized rules like PCN and serves external users.

  2. In Luxembourg, all businesses must use which accounting standard?

    • Answer: c) All Luxembourg businesses must use PCN (Plan Comptable Normalisé).

  3. Who would be most interested in a company's cash flow statement?

    • Answer: c) Both internal managers and external users (investors, creditors) need cash flow information.

  4. The accounting equation states:

    • Answer: b) Assets = Liabilities + Equity is the fundamental accounting equation.

  5. In Luxembourg, annual accounts must be filed with RCS within how many months of the fiscal year end?

    • Answer: c) Annual accounts must be filed within 7 months of fiscal year end.

  6. Which organization regulates certified public accountants in Luxembourg?

    • Answer: b) OEC (Ordre des Experts-Comptables) regulates certified public accountants.

  7. Managerial accounting is primarily used by:

    • Answer: c) Managerial accounting serves internal users like managers and business owners.

  8. A fiduciaire in Luxembourg is:

    • Answer: b) A fiduciaire is a licensed accounting firm providing services to businesses.

  9. Which of the following is NOT a typical step in the accounting cycle?

    • Answer: c) All transactions must be recorded; none should be ignored.

  10. In Luxembourg, businesses must retain accounting documents for:

  • Answer: d) Businesses must retain documents for 10 years.

Questions – Suggested Answers​

  1. Financial vs. managerial accounting – Financial accounting targets external stakeholders, follows PCN, relies on historical, audit-ready reports (bilan, compte de résultat, flux). Managerial accounting is internal, forward-looking, flexible (budgets, cost dashboards). A Luxembourg restaurant files annual accounts with the RCS (financial) while using weekly cost analyses to price menus (managerial).
  2. External users – Investors (profitability & growth), creditors such as BGL BNP Paribas (liquidity & leverage), and the ACD (complete records, TVA returns) rely on standardized statements to make capital, lending, or compliance decisions.
  3. Accounting cycle – Identify → record → post → trial balance → adjust → prepare statements → close. Each step ensures all transactions are captured, organized, verified, periodized, reported, and reset for the next cycle.
  4. Role of OEC – Regulates Luxembourg experts-comptables: standards, licensing, continuing education, discipline, and profession-wide representation.
  5. Why accounting is mandatory – Commercial Code requires proper books, PCN chart, annual RCS filing, TVA/eCDF submissions, and 10-year document retention. Non-compliance triggers fines, interest, rejected filings, reputation loss, and potentially licence withdrawal.
  6. PCN consistency – Common account structure (classes 1–7), uniform mapping to statements, easier cross-company comparisons, predictable data for banks/regulators, and alignment with EU practice.
  7. Path to expert-comptable – University degree (often master), supervised traineeship, professional exams covering accounting/audit/tax/law, OEC membership, and ongoing CPD.
  8. Fiduciaire services – PCN-compliant bookkeeping, annual accounts, TVA/impôt preparation, payroll, compliance monitoring, advisory support, audit for eligible entities, representation before authorities.
  9. Decision-making – Accounting information reveals performance, cost structures, cash runway, and risk. Example: using contribution margins to determine whether to expand lunch service or to open a second location.
  10. Importance of Assets = Liabilities + Equity – Foundation of double-entry, error check, basis of the balance sheet, and universal lens for analyzing transactions (e.g., loan inflows increase cash and liabilities simultaneously).

Problems Set A – Solution Highlights​

  • A‑1 – Classify stakeholders (owner/internal; bank/external; investor/external; ACD/external; manager/internal) and pair each with relevant statements/metrics and usage (pricing, lending, compliance, operations).
  • A‑2 – a) Financial b) Managerial c) Financial d) Managerial e) Financial f) Managerial.
  • A‑3 – a) Equity €30 000 b) Liabilities €30 000 c) Assets €70 000
  • A‑4 – Examples: PCN adoption, annual RCS filing, eCDF TVA declarations, 10-year retention. For each, explain rationale and sanctions.
  • A‑5 – Correct order: Identify → Record → Post → Trial Balance → Adjust → Prepare Statements → Close.

Problems Set B – Solution Highlights​

  • B‑1 – Build a matrix listing internal/external users, their data needs (e.g., owner's budgets vs. creditor ratios), usage (strategy, loan terms), and whether requirements are legal or voluntary.
  • B‑2 – Compare expert-comptable (regulated, audit/advisory), fiduciaire (full-service for SMEs, ministry licence), and in-house accountant (employee focused on daily operations).
  • B‑3 – Expansion decision: financial accounting provides historical evidence for lenders/investors; managerial accounting provides projections, breakeven, resource plans; match each information set with respective audiences.
  • B‑4 – Explain interplay between Code de Commerce (legal basis), PCN (chart), CNC (interpretation), and RCS (public filing) to ensure transparency and comparability.

Comprehensive Problem – Outline​

  1. Importance – Legal compliance (PCN, TVA, dépôts) plus managerial benefits (planning, cash control).
  2. Users – Owner, managers, lenders, investors, ACD, suppliers; specify info needed and decisions supported.
  3. Cycle – Step-by-step application tailored to Mode Luxembourg (documentation, journalising, adjustments, closing).
  4. Options – DIY (low cost, high risk), hire in-house (control, fixed salary), outsource to fiduciaire (expertise, scalable). Weigh costs, skills, regulatory comfort.
  5. Key obligations – PCN accounts, RCS filing (7 months), TVA/eCDF cadence, 10-year retention, social charges.
  6. Dual role – Financial accounting satisfies external stakeholders; managerial accounting supports pricing, stock, staffing decisions.

Cases – Solution Highlights​

  • Case 1‑1 (Jean-Pierre) – Risks: TVA penalties, inaccurate profits, financing hurdles. Recommend instituting PCN-based bookkeeping (software or fiduciaire support), scheduled TVA submissions, and internal dashboards to free owner time while staying compliant.
  • Case 1‑2 (Maria) – Evaluate Big Four (fast learning, travel), mid-size fiduciaire (broad SME exposure), in-house SME role (work-life balance), and entrepreneurship (autonomy, higher risk). Consider desired salary, growth, specialisation, language strengths, and ultimately align recommendation with her goals.

Full worked answers, including templates and downloadable files, remain in supplementary/instructor/solutions/chapter_01_solutions.md for reference.