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Chapter Summary

Section 5.1: Describe and Prepare Closing Entries​

  • Closing entries transfer temporary account balances to permanent accounts
  • Four steps: Close revenues, close expenses, close income summary, close withdrawals
  • Temporary accounts (revenues, expenses) are reset to zero
  • Permanent accounts (assets, liabilities, equity) carry forward
  • Can use Income Summary method or direct closing method

Section 5.2: Prepare a Post-Closing Trial Balance​

  • Prepared after all closing entries are posted
  • Contains only permanent accounts (assets, liabilities, equity)
  • Verifies temporary accounts are closed (zero balances)
  • Verifies mathematical accuracy after closing
  • Shows starting balances for next period

Section 5.3: Compute Current Ratio and Working Capital​

  • Current Ratio = Current Assets ÷ Current Liabilities
  • Working Capital = Current Assets - Current Liabilities
  • Both measure liquidity (ability to pay short-term obligations)
  • Current ratio > 1.5 generally indicates good liquidity
  • Positive working capital indicates financial stability

Section 5.4: Complete Accounting Cycle​

  • Complete cycle includes: transactions, posting, trial balance, adjustments, financial statements, closing, post-closing trial balance
  • Each step builds on the previous
  • Cycle repeats each period
  • Ensures accurate financial reporting
  • Foundation for all accounting work

Section 5.5: Luxembourg Monthly/Quarterly Closing​

  • Monthly/quarterly closing is best practice (not legally required)
  • Important for VAT filing (monthly/quarterly filers)
  • Helps with cash flow management
  • Enables regular performance monitoring
  • Includes specific Luxembourg requirements (VAT, social charges)

Section 5.6: Luxembourg Annual Closing and RCS Filing​

  • Annual closing is mandatory for all businesses
  • Must file annual accounts with RCS within 7 months of year end
  • Must follow PCN format and standards
  • Audit may be required for larger businesses
  • Significant penalties for non-compliance
  • Documents must be retained for 10 years