Introduction to Accounting Entries for a Business
Senior 2 · Entrepreneurship
Introduction to Accounting Entries for a Business
Lesson 2 of 5
22 min
A bank or SACCO deciding whether to lend to a young entrepreneur asks two questions: what does the business own, and what does it owe? The accounting equation links these, and the balance sheet shows them on one page. Once you understand the equation, double entry, which comes next, makes sense.
Assets = Liabilities + Capital
Everything the business has was provided either by outsiders (liabilities) or by the owner (capital), so the two sides are always equal. The equation can be rearranged: Capital = Assets − Liabilities.
Written by Ganzaa. Habimana opens a phone repair shop in Huye. Watch how each transaction keeps the equation in balance.
| Transaction | Effect | Total assets (Frw) | Liabilities (Frw) | Capital (Frw) |
|---|---|---|---|---|
| 1. Starts the business with 600,000 Frw cash | Cash +600,000; capital +600,000 | 600,000 | 0 | 600,000 |
| 2. Buys tools for 150,000 Frw cash | Tools +150,000; cash −150,000 | 600,000 | 0 | 600,000 |
| 3. Buys spare parts on credit for 200,000 Frw | Inventory +200,000; creditors +200,000 | 800,000 | 200,000 | 600,000 |
| 4. Borrows 300,000 Frw from a SACCO, paid into the bank | Bank +300,000; loan +300,000 | 1,100,000 | 500,000 | 600,000 |
| 5. Pays the supplier 80,000 Frw cash | Cash −80,000; creditors −80,000 | 1,020,000 | 420,000 | 600,000 |
After every line, assets = liabilities + capital. After line 5: 1,020,000 = 420,000 + 600,000. ✔ Notice that transaction 2 changed the kind of asset but not the total.
A balance sheet (statement of financial position) lists the assets, liabilities and capital on one date.
| Habimana Phone Repairs: balance sheet as at 30 September 2026 | |
|---|---|
| Assets | Frw |
| Non-current assets: tools | 150,000 |
| Current assets: inventory (spare parts) | 200,000 |
| Current assets: bank | 300,000 |
| Current assets: cash | 370,000 |
| Total assets | 1,020,000 |
| Capital and liabilities | Frw |
| Capital | 600,000 |
| Non-current liability: SACCO loan | 300,000 |
| Current liability: creditors (supplier) | 120,000 |
| Total capital and liabilities | 1,020,000 |
(Cash: 600,000 − 150,000 − 80,000 = 370,000 Frw. Creditors: 200,000 − 80,000 = 120,000 Frw. The SACCO loan is treated here as repayable over more than a year.)
Tip
Exam technique. For each transaction, name the two items that change and whether each goes up or down. Then check: does Assets = Liabilities + Capital still hold? If a question gives assets and liabilities, capital is simply assets minus liabilities.
Solution: (a) asset (non-current); (b) liability; (c) capital; (d) asset (a receivable).
Solution: 900,000 − 250,000 = 650,000 Frw.
Solution: Cash +50,000 and inventory −20,000, so assets rise by 30,000 Frw; capital rises by the 30,000 Frw profit.
Solution: Cash (asset) −40,000 and capital −40,000 (drawings). The equation still balances.
Summary
Sources and credits
The phone repair example, the balance sheet and the practice items are written by Ganzaa.
This lesson adapts CC BY-SA material and is shared under CC BY-SA 4.0.
