Reading a balance sheet is not just for accountants. Here is how it is built under the PCN 2020, what a director should watch, and the legal threshold too many managers discover too late.
In short. The balance sheet is a snapshot of your company's worth at a given date. It reads in two columns: assets, what the business owns and is owed, and liabilities, what it owes and what it is worth to its shareholders. In Luxembourg, it is drawn up under the standard chart of accounts PCN 2020 and filed each year with the trade register. For a director, learning to read it is not becoming an accountant: it is spotting three or four figures that say whether the business stands up. One legal threshold in particular, Article 100 of the 1915 law, is triggered when equity falls below half the share capital.
Many managers receive their balance sheet once a year, give it a polite glance, and file it away. That is a shame, because a balance sheet reads quickly once you know where to look, and it holds signals no sales dashboard gives. Here is how it is built in Luxembourg, what an SME director should watch, and the legal threshold worth knowing before the firm calls you.
What is a balance sheet?
A balance sheet is a statement showing, at a given date, what a company owns and how it financed it. It splits into two parts of equal amount: assets, on the left, listing property and receivables, and liabilities, on the right, listing equity and debts. The two columns always balance, because everything the company holds was financed by something, either its shareholders or its creditors.
In Luxembourg, the balance sheet is part of the annual accounts most companies must prepare and file with the trade register, alongside the profit and loss account and the notes. Its structure is not free: it follows from the standard chart of accounts.
Assets, liabilities: the balance-sheet structure under the PCN 2020
The PCN 2020 places each account in a class, and those classes map directly onto the balance sheet. Assets draw mainly on classes 2, 3, 4 and 5; liabilities on class 1 and the "debt" side of class 4. We set out this class logic in our guide to the standard chart of accounts. Here is the overall reading.
| Side | Main heading | What you find there |
|---|---|---|
| Assets | Fixed assets | What serves the business over time: equipment, vehicles, software, buildings |
| Assets | Current assets | Inventory, trade receivables, other short-term receivables |
| Assets | Cash at bank and in hand | Available cash |
| Liabilities | Equity | Capital, reserves and accumulated results: what belongs to the shareholders |
| Liabilities | Provisions | Probable future charges that are not yet certain |
| Liabilities | Debts | Suppliers, banks, the State, social security |
A simple reading rule helps: assets say what the company did with its money, liabilities say where that money came from. A machine bought on credit appears twice, in assets for its value and in liabilities for the debt that financed it. That double reading is what keeps the balance sheet in balance.
The four figures a director should watch
You do not need to comb through everything. Four readings are enough to take an SME's pulse.
Equity first, at the top of liabilities. It is what the company is worth to its shareholders once all debts are removed. If it shrinks year after year, the business is consuming its own substance, even when turnover rises. Cash next, at the bottom of assets: it says whether you can pay tomorrow, regardless of your result. Trade receivables, which measure the money you have invoiced but not yet collected; when they swell, your profit may be on paper, not in the account. And short-term debts last, which you compare with cash and receivables to check that what comes in soon covers what goes out soon.
Read together, these four figures tell a story the profit and loss account does not. A company can be profitable and short of cash, earning money and fragile at the same time. The balance sheet does not lie on that point.
Want us to read your latest balance sheet with you and tell you what it actually says? We do it without jargon.
Have your balance sheet readThe legal threshold too many managers discover too late
Here is the point few directors know, yet it is no specialist subtlety. Luxembourg's law of 10 August 1915 on commercial companies provides, in its Article 100, that when losses bring net assets (equity) below half the share capital, the managers or directors must convene the general meeting. It rules on the possible dissolution of the company. If losses reach three quarters of the capital, dissolution can be decided by shareholders representing a quarter of the votes present.
In practice, this threshold reads in the balance sheet, nowhere else. Comparing your equity with your subscribed capital is how you know whether it concerns you. A company set up with modest capital that stacks up two or three loss-making years can cross this threshold without anyone noticing, until the closing puts it in black and white. Knowing it in advance means you can react: recapitalise, adjust, or take the decision that is due, rather than have it forced on you. This provision is in force in its consolidated version applicable in 2025; like any company-law rule, its concrete application should be confirmed case by case with your adviser.
From the balance sheet to the annual accounts, and to tax
The balance sheet does not stand alone. Together with the profit and loss account and the notes, it makes up the annual accounts filed each year with the trade register, within deadlines that are costly to miss, as we explain in our article on filing annual accounts in Luxembourg. The same balance sheet also serves as the basis for your taxes on income and on wealth, which we detail in our article on corporate tax in Luxembourg.
That is why a correct, year-round balance sheet beats one reconstructed in the spring. If your books are kept properly under the PCN as you go, closing is a matter of checking and aggregating. If the chart of accounts has drifted, it becomes an investigation, with the risk of missing an important signal along the way.
Reading your balance sheet whenever you want, not once a year
Most directors only see their balance sheet at closing, several months after the year ends. By then, the figures serve to record, not to decide. That is exactly what our model changes. We keep your books in the Odoo we set up for Luxembourg, so your balance sheet builds continuously: your bank flows and invoices feed the accounts as you go, and you view your net position when you need it, not eight months later.
No classic accounting firm touches your management tool, and no integrator keeps your books. We do both in the same system, which gives a balance sheet you can read at any time rather than a snapshot of last year. The full framework of this model is set out in our guide to accounting firms in Luxembourg, and its cost in our article on what an accounting firm costs. The fixed fee starts from €325 per month, all included.
Want a balance sheet you can read whenever you like, not once a year? Let's talk.
Talk about your bookkeepingFrequently asked questions
What is the difference between the balance sheet and the profit and loss account?
The balance sheet is a snapshot of net worth at a given date: what the company owns and owes. The profit and loss account traces income and expenses over a whole period and arrives at the result. The first shows the state, the second the movement.
Why do assets always equal liabilities?
Because everything the company owns was necessarily financed, either by its shareholders (equity) or by third parties (debts). Assets say what was done with the money, liabilities say where it came from. The two totals are therefore equal by construction.
What does "equity below half the capital" mean in Luxembourg?
It is the Article 100 threshold of the law of 10 August 1915. When losses bring net assets below half the share capital, directors must convene the general meeting to rule on a possible dissolution. At three quarters of losses, dissolution can be decided by a quarter of the votes. This is general information, to be confirmed with your adviser for your situation.
Must a small company file a full balance sheet?
Small entities benefit from simplified annual-accounts formats, but the balance sheet is still due once there is a filing with the trade register. The level of detail depends on the company's size against the legal thresholds.
How often should I look at my balance sheet?
Ideally, more than once a year. With real-time bookkeeping, an interim balance sheet can be viewed at any time and lets you track equity and cash without waiting for the closing.
Read more
- The standard chart of accounts in Luxembourg (PCN 2020): a guide
- Filing annual accounts in Luxembourg: deadlines, late fees and preparation
- Corporate tax in Luxembourg: CIT, municipal business tax and net wealth tax
- Accounting firm in Luxembourg: the complete guide for an SME
- Financial dashboards in Odoo: steering your SME in real time
Why Advena?
We are the only Luxembourg accounting firm that keeps your books inside the management tool it deployed for you. Your balance sheet builds continuously, you read it when you need it, and the fixed fee starts from €325 per month, all included. We inform you of rules such as the Article 100 threshold, we do not replace tailored advice, and we tell you plainly when our model is not right for you.
Tell us where you stand, we'll tell you what it costs. No phantom quote.
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