Chapter 3: Analyzing and Recording Transactions
Chapter Introduction​
Marie sits at her kitchen table, surrounded by receipts, invoices, and bank statements. It's the end of November, and Monsieur Schneider has asked her to organize all her business transactions before their monthly meeting. "How do I know which transactions to record?" she wonders. "And how do I record them properly?"
She picks up a receipt from her supplier: €500 for ingredients, plus €85 VAT. Then there's a bank deposit slip showing €1,200 from customers. A utility bill for €150. An invoice she sent to a catering client for €800. "All of these affect my business," she thinks, "but how do I record them so they make sense?"
Monsieur Schneider will explain that every business transaction—no matter how small—must be analyzed and recorded using the double-entry bookkeeping system. This system, required by law in Luxembourg, ensures that the accounting equation (Assets = Liabilities + Equity) always balances. Each transaction affects at least two accounts, and understanding how to analyze and record these transactions is fundamental to proper accounting.
In Luxembourg, all businesses must maintain accounting records according to the Plan Comptable Normalisé (PCN). This means not only recording transactions correctly, but also using the proper PCN account numbers and classifications. The double-entry system isn't just good practice—it's a legal requirement that ensures accuracy, prevents errors, and provides a complete audit trail.
This chapter teaches you how to analyze business transactions, understand the accounting principles that guide recording, and properly record transactions using journal entries and T-accounts. You'll learn the expanded accounting equation, the steps in the accounting cycle, and how to prepare a trial balance. Most importantly, you'll understand how to apply these concepts using Luxembourg's PCN system and comply with legal requirements.
By the end of this chapter, you'll be able to analyze any business transaction, determine which accounts are affected, and record it properly—just like Marie will learn to do for her restaurant.
Why It Matters​
Every business transaction—from a €5 coffee purchase to a €50,000 equipment acquisition—must be properly analyzed and recorded. This isn't just bookkeeping; it's the foundation of accurate financial reporting, legal compliance, and sound business decision-making.
In Luxembourg, proper transaction recording is essential because:
- Legal Compliance: The Commercial Code requires all businesses to maintain double-entry accounting records
- Tax Accuracy: Proper recording ensures accurate VAT calculations and tax reporting
- Financial Accuracy: Correct transaction recording leads to accurate financial statements
- Audit Trail: Proper documentation provides a complete record for audits and reviews
- Business Decisions: Accurate records enable informed decision-making based on real data
Understanding how to analyze and record transactions is fundamental. Without this skill, you cannot prepare financial statements, file tax returns, or make informed business decisions. In Luxembourg's regulated business environment, where transparency and accuracy are paramount, proper transaction recording is not optional—it's essential.
Learning Objectives​
By the end of this chapter, you should be able to:
- Describe principles, assumptions, and concepts of accounting and their relationship to financial statements
- Define and describe the expanded accounting equation and its relationship to analyzing transactions
- Define and describe the initial steps in the accounting cycle
- Analyze business transactions using the accounting equation and show the impact of business transactions on financial statements
- Use journal entries to record transactions and post to T-accounts
- Prepare a trial balance
- Understand the Luxembourg PCN account numbering system and transaction mapping
- Explain Luxembourg double-entry requirements and legal obligations