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Chapter Summary

Section 3.1: Describe Principles, Assumptions, and Concepts of Accounting​

  • Accounting principles: Cost, Revenue Recognition, Matching, Full Disclosure
  • Accounting assumptions: Economic Entity, Going Concern, Time Period, Monetary Unit
  • Accrual basis accounting required in Luxembourg
  • All principles incorporated into PCN standards

Section 3.2: Define and Describe the Expanded Accounting Equation​

  • Basic equation: Assets = Liabilities + Equity
  • Expanded equation includes: Share Capital, Retained Earnings, Revenue, Expenses, Withdrawals
  • Every transaction affects the equation
  • Debits and credits maintain balance
  • DEAD CLIC memory aid for debit/credit rules

Section 3.3: Define and Describe the Initial Steps in the Accounting Cycle​

  • Step 1: Identify transactions
  • Step 2: Analyze transactions
  • Step 3: Record in journal
  • Step 4: Post to ledger
  • All steps must follow PCN requirements

Section 3.4: Analyze Business Transactions Using the Accounting Equation​

  • Systematic approach to transaction analysis
  • Every transaction affects at least two accounts
  • Must verify equation always balances
  • Consider VAT in Luxembourg transactions
  • Show impact on financial statements

Section 3.5: Use Journal Entries to Record Transactions and Post to T-Accounts​

  • Journal entries: Date, accounts, debits, credits, description
  • T-accounts: Visual representation of ledger accounts
  • Normal balances: Assets/Expenses (debit), Liabilities/Equity/Revenue (credit)
  • Must include PCN account numbers
  • Posting transfers journal entries to ledger

Section 3.6: Prepare a Trial Balance​

  • Lists all accounts and balances
  • Verifies debits = credits
  • Proves mathematical accuracy
  • Does not prove all transactions recorded correctly
  • Required step before financial statements

Section 3.7: Luxembourg PCN Account Numbering System​

  • 6-digit numbering system (XXXXXX)
  • 7 classes (1-7) by first digit
  • Sub-accounts for detailed tracking
  • Must use PCN numbers for all transactions
  • Ensures consistency and compliance

Section 3.8: Luxembourg Double-Entry Requirements​

  • Double-entry bookkeeping is legal requirement
  • Every transaction affects at least two accounts
  • Must maintain journals, ledgers, source documents
  • 10-year retention requirement
  • Significant penalties for non-compliance