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Overview

You don’t need to be an accountant to manage an organization, but understanding basic accounting principles helps you use Agatabo effectively and interpret financial reports correctly.

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The Accounting Equation

Everything in accounting revolves around this equation: 
ASSETS = LIABILITIES + EQUITY
Assets: What the organization owns Liabilities: What the organization owes Equity: What the members own (net worth) Example:
  • Assets: Cash in bank (5M), Loans to members (10M), Equipment (1M) = 16M total
  • Liabilities: Member savings (12M), Reserves (2M) = 14M total
  • Equity: Retained earnings (profit) = 2M
  • Equation: 16M = 14M + 2M ✓

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Double-Entry Accounting

Every transaction has two sides - money comes from somewhere and goes somewhere. Examples: Member deposits 10,000 RWF:
  • Debit (increase) Cash: +10,000
  • Credit (increase) Member Savings: +10,000
Member receives 50,000 RWF loan:
  • Debit (increase) Loan Receivable: +50,000
  • Credit (decrease) Cash: -50,000
Member repays 50,000 RWF loan:
  • Debit (increase) Cash: +50,000
  • Credit (decrease) Loan Receivable: -50,000
Rule: Total debits must always equal total credits.

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Debits and Credits Simplified

Forget what you learned about “debit card” meaning money out. In accounting, debit/credit are technical terms:
Account TypeDebit =Credit =
Assets (cash, loans)Increase ➕Decrease ➖
Liabilities (savings, reserves)Decrease ➖Increase ➕
Equity (profit)Decrease ➖Increase ➕
Revenue (interest income)Decrease ➖Increase ➕
Expenses (salaries, rent)Increase ➕Decrease ➖
Tip: Focus on the Balance column in reports, not debit/credit. Agatabo handles the accounting rules automatically.

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Key Financial Statements

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Balance Sheet (Statement of Financial Position)

Shows: What you own, what you owe, and members’ equity at a specific date Format: 
ASSETS
  Cash                    5,000,000
  Loans Receivable       10,000,000
  Equipment               1,000,000
  Total Assets           16,000,000

LIABILITIES
  Member Savings         12,000,000
  Reserves                2,000,000
  Total Liabilities      14,000,000

EQUITY
  Retained Earnings       2,000,000
  Total Equity            2,000,000

Total Liabilities + Equity: 16,000,000
Use: See financial health at a glance. Are assets growing? Is equity positive?

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Profit & Loss (Income Statement)

Shows: Revenue earned minus expenses incurred over a period Format: 
REVENUE
  Interest Income         2,000,000
  Fee Income                300,000
  Total Revenue           2,300,000

EXPENSES
  Operating Expenses        800,000
  Salaries                  500,000
  Bank Charges               50,000
  Total Expenses          1,350,000

NET INCOME (Profit)         950,000
Use: See if organization is profitable. Track performance month-over-month.

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Cash vs Accrual Accounting

Cash Basis (simpler):
  • Record income when cash received
  • Record expense when cash paid
  • Ignores timing of when earned/incurred
Accrual Basis (more accurate):
  • Record income when earned (even if not yet received)
  • Record expense when incurred (even if not yet paid)
  • Matches revenue to related expenses
Agatabo: Primarily uses cash basis for simplicity. When you record a deposit, it’s based on actual cash received. Exception: Interest on loans may accrue over time (calculated but not yet received).

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Common Accounts

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Asset Accounts

Cash (Bank Account):
  • Physical cash and bank balances
  • Used to pay expenses, disburse loans
Loans Receivable:
  • Total outstanding principal members owe
  • Decreases as members repay
Interest Receivable (if used):
  • Interest earned but not yet collected
  • Converts to cash when payment received

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Liability Accounts

Member Savings:
  • Total deposits members have made
  • Money owed back to members
  • Your organization’s primary liability
Reserves:
  • Money set aside for emergencies, bad debts
  • Still owed to members (part of equity), but restricted

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Equity Accounts

Retained Earnings:
  • Cumulative profit over organization’s lifetime
  • Increases with profit, decreases with losses
Current Year Earnings:
  • Profit/loss for current year only
  • Rolls into Retained Earnings at year-end

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Revenue Accounts

Interest Income:
  • Interest charged on loans
  • Primary revenue source for most organizations
Fee Income:
  • Processing fees, late fees, membership fees
  • Secondary revenue

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Expense Accounts

Operating Expenses:
  • Rent, supplies, communications
Salaries:
  • Pay for treasurer, accountant, manager
Bank Charges:
  • Fees charged by bank for account maintenance
Bad Debt Expense:
  • Loans written off as uncollectible

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Reconciliation

Reconciliation = Comparing two sets of records to ensure they match. Bank reconciliation:
  • Compare Agatabo’s cash account balance to bank statement
  • Identify differences (uncleared checks, bank fees)
  • Record any missing transactions
  • Goal: Agatabo balance matches bank balance (after adjustments)
Why reconcile?
  • Catch bank errors
  • Identify missing transactions
  • Detect fraud or unauthorized charges
  • Ensure accurate financial reports
How often? Monthly, as part of closing procedures.

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Depreciation (Not Used in Agatabo)

Depreciation = Spreading asset cost over its useful life Example: Equipment costs 1,000,000 RWF, lasts 5 years
  • Annual depreciation: 1,000,000 ÷ 5 = 200,000/year
  • After 3 years, equipment “worth” 400,000 on books
Agatabo: Does NOT automatically calculate depreciation. Fixed assets recorded at purchase price and remain at that value. Implication: Your balance sheet may overstate asset values over time (equipment wears out but stays at original cost).

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Key Metrics

Liquidity (Can you pay obligations?):
  • Formula: Cash ÷ Member Savings
  • Target: >10% (have 10% of savings as cash buffer)
Profitability (Are you making money?):
  • Formula: Net Income ÷ Total Revenue × 100
  • Target: >20% profit margin
Portfolio Quality (Are loans being repaid?):
  • Formula: Loans >30 days overdue ÷ Total loans
  • Target: Less than 10% PAR30
Return on Assets (How efficiently are you using assets?):
  • Formula: Net Income ÷ Total Assets × 100
  • Target: >5% annually

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Common Accounting Terms

TermDefinition
Journal EntryRecord of a transaction (debits + credits)
LedgerCollection of all accounts (chart of accounts)
Closing PeriodLocking past period so transactions cannot be changed
AccrualRecognizing revenue/expense before cash changes hands
Write-offRemoving uncollectible loan from books as loss
ProvisionsMoney set aside for expected future losses

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Learning More

For non-accountants, focus on:
  1. Reading Balance Sheet and P&L statements
  2. Understanding assets vs liabilities
  3. Reconciling bank accounts monthly
  4. Interpreting key metrics (liquidity, profitability)
Don’t worry about:
  • Complex journal entries (Agatabo automates these)
  • Debit/credit rules (Agatabo enforces automatically)
  • Tax accounting (unless required by law)
If your organization grows large (>100 members or >50M assets), consider hiring a professional accountant for quarterly reviews.

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Need Help?

Understanding Double-Entry

Transaction examples

Balance Sheet

Reading financial reports