Initiation to Accounting
Senior 1 · Entrepreneurship
Initiation to Accounting
Lesson 2 of 5
25 min
Every morning Hakizimana rides his bicycle to small dairy farms on the edge of Kigali, buys their milk at Frw 300 a litre, and sells it to milk bars in the city at Frw 400. For two years he kept everything in his head.
Then two things happened in the same month. A farmer, Mukandayisenga, said he owed her for 40 litres; he was sure it was 30, but he could prove nothing, so he paid for 40. A week later he asked his SACCO for a loan to buy a motorbike. The loan officer said: "Show me your sales and costs for the last six months." He had nothing to show. (An illustrative case.)
Think about it: how would written records have helped Hakizimana in each situation?
Definition
Income (revenue): the money a business earns from selling its goods or services in a period.
Example: Hakizimana's sales of milk to the milk bars in March.
Definition
Expenses: the costs a business pays to earn its income in a period.
Example: the milk he buys from farmers, bicycle repairs, soap for cleaning the cans, phone credit.
Definition
Profit and loss: profit is what is left when expenses are taken from income; if expenses are bigger than income, the business makes a loss.
Example: income Frw 50,000 and expenses Frw 42,000 give a profit of Frw 8,000.
Definition
Debtor and creditor: a debtor is a person or business that owes money TO the business; a creditor is one that the business owes money TO.
Example: a milk bar that will pay Hakizimana on Friday is his debtor; a farmer he has not yet paid is his creditor.
| Accounts help a business to… | For Hakizimana, this means… |
|---|---|
| 1. Know its profit or loss | knowing whether a month of cycling actually paid |
| 2. Control cash and prevent losses | spotting spoiled milk, wrong change or theft quickly |
| 3. Know its debtors and creditors | knowing which milk bars owe him and which farmers he owes |
| 4. Plan and make decisions | setting prices, budgeting, deciding whether to buy a motorbike |
| 5. Get loans | showing the SACCO that his income can repay a loan |
| 6. Pay the right tax | working out tax from real figures, not a guess |
| 7. Compare performance over time | seeing whether March was better than January |
| 8. Settle disputes with evidence | showing a farmer exactly how many litres she delivered |
| 9. Meet the law and attract partners | registered companies and cooperatives must keep accounts; a partner will want to see them |
Tip
Remember the big five: P, C, D, L, T. Profit, Control, Decisions, Loans, Tax. If you can explain these five, you can explain why accounting matters.
After losing the argument over the milk, Hakizimana started a notebook. Each morning he writes the litres from each farmer, and the farmer signs the line. At the end of each month he adds up his income and expenses:
Worked example
Worked example 1: March's profit (illustrative figures, March 2026)
He bought 1,200 litres from farmers at Frw 300 a litre. 20 litres went sour, so he sold 1,180 litres at Frw 400. He also paid Frw 8,000 for bicycle repairs, Frw 4,000 for soap and cleaning, and Frw 3,000 for phone credit.
Step 1: income.
Step 2: expenses. Milk: . All expenses:
Step 3: profit. A profit of Frw 97,000.
Step 4: learn from it. The 20 sour litres cost him francs. A cleaner can and a faster round could save that money every month.
Worked example 2: settling a dispute
Mukandayisenga again says she delivered 40 litres in the first week of April. Hakizimana's signed notebook shows:
| Day | Mon | Tue | Wed | Thu | Fri | Sat |
|---|---|---|---|---|---|---|
| Litres | 5 | 6 | 4 | 5 | 5 | 5 |
litres, so he owes francs, not . Because she signed each line, both of them accept the record. Good records protect the farmer as well as the trader.
With three months of records Hakizimana can draw a chart and see how his business is moving.
Income and profit rose each month. The SACCO officer can now see an average profit of about Frw 85,000 a month, and can judge whether a loan instalment is affordable.
Warning
Don't forget the small expenses. A common mistake is to count every sale but forget the moto fare, the phone credit, the soap and the spoiled goods. Each is small, but together they can turn a "profit" into a loss. Record every expense on the day it is paid.
Business Queensland (an Australian government service), "Record keeping 101" (about 3 minutes). Watch for which records a business should keep, how long to keep them, and how to keep them safe. The tax office it mentions is Australia's; in Rwanda it is the Rwanda Revenue Authority (RRA).
Interview a shopkeeper, farmer, tailor or hairdresser near your home. Ask: (1) What records do you keep, and how? (2) Has a record ever helped you settle a problem? (3) Have you ever lost money because something was not written down? Report back which of the "big five" reasons came up.
Practice
Sources and credits
Written by Ganzaa: the milk-trader case, the table, the worked examples, the chart, the activity and the practice items. All figures are illustrative (2026).
