Lesson Note on Account of Non-Profit Organization: Income and Expenditure Account for SSS 2

Class: Senior Secondary School 2 (SS2 / SSS2)
Term: 1st Term
Week: 6
Age: 16 years
Duration: 45 minutes
Subject: Financial Accounting
Curriculum Theme: Nil
Previous Lesson: Account of Non-Profit Organization: Receipts and Payments Account.
Topic: ACCOUNT OF NON-PROFIT ORGANIZATION
Subject Matter: Income and expenditure account (meaning), differences between receipts and payment account and income and expenditure account, format of income and expenditure account

Specific Objectives

By the end of the lesson, pupils should be able to:

Cognitive Domain:

• Define Income and Expenditure Account.
• State at least three differences between Receipts and Payments Account and Income and Expenditure Account.
• Outline the basic format of an Income and Expenditure Account.

Affective Domain:

• Appreciate the importance of proper accounting for non-profit organizations.
• Show interest in preparing financial statements for non-profit organizations.

Psychomotor Domain:

• Prepare a simple Income and Expenditure Account from given information.
• Convert relevant items from a Receipts and Payments Account into an Income and Expenditure Account.

Social Domain:

• Collaborate effectively during class activities.
• Participate actively in discussions on non-profit organization accounts.

Reference Materials

The following resources were used in planning this lesson:

• Senior Secondary Schools Education Curriculum
• State Unified Scheme of Work
• Simplified Financial Accounting for Senior Secondary Schools

Instructional Materials

The teacher will teach this lesson with the aid of:

• Charts showing the format of an Income and Expenditure Account
• Flashcards with examples of income and expenditure items

Rationale for the Lesson

This lesson helps pupils understand how non-profit organizations keep their financial records. It enables them to differentiate between cash-based and accrual-based accounting for these organizations, which is important for proper financial reporting and management.

Prerequisite/Previous Knowledge

Pupils should have a basic understanding of financial accounting concepts such as revenue and capital expenditure, cash basis and accrual basis of accounting, and the concept of a Receipts and Payments Account.

Lesson Content/Board Summary

ACCOUNT OF NON-PROFIT ORGANIZATION

Income and Expenditure Account (Meaning)

The Income and Expenditure Account is a financial statement prepared by non-profit organizations at the end of an accounting period. It is similar to a Profit and Loss Account for profit-making organizations, but instead of showing net profit or loss, it shows either a surplus (when income exceeds expenditure) or a deficit (when expenditure exceeds income). This account is prepared on an accrual basis, meaning it records all incomes and expenses relating to the period, whether cash has been received or paid or not.

Differences between Receipts and Payments Account and Income and Expenditure Account

The following are the differences between Receipts and Payments Account and Income and Expenditure Account:

• Nature: Receipts and Payments Account is a summary of cash transactions (cash book). Income and Expenditure Account is similar to a Profit and Loss Account.
• Basis of Accounting: Receipts and Payments Account is prepared on a cash basis. Income and Expenditure Account is prepared on an accrual basis.
• Items Included: Receipts and Payments Account includes all cash receipts and payments, whether capital or revenue in nature. Income and Expenditure Account includes only revenue incomes and expenses related to the current period.
• Opening/Closing Balances: Receipts and Payments Account starts with an opening cash/bank balance and ends with a closing cash/bank balance. Income and Expenditure Account has no opening or closing cash/bank balances.
• Purpose: Receipts and Payments Account shows the cash position. Income and Expenditure Account shows the operating result (surplus or deficit) for the period.
• Non-cash Items: Receipts and Payments Account does not include non-cash items like depreciation. Income and Expenditure Account includes non-cash items like depreciation, accruals, and prepayments.

Format of Income and Expenditure Account

The Income and Expenditure Account is presented in a ‘T’ format or vertical format.

Income and Expenditure Account for the year ended [Date]

Expenditure Side (Debit)

• Salaries and Wages
• Rent and Rates
• Printing and Stationery
• Repairs and Maintenance
• Depreciation on Assets
• Insurance
• General Expenses
• Loss on Sale of Assets
• (Add) Outstanding Expenses
• (Less) Prepaid Expenses
• Deficit (Excess of Expenditure over Income)

Income Side (Credit)

• Subscriptions (adjusted for outstanding/prepaid)
• Donations (revenue nature)
• Entrance Fees (if treated as revenue)
• Legacies (if treated as revenue)
• Interest Received
• Rent Received
• Profit on Sale of Assets
• (Add) Accrued Income
• (Less) Income Received in Advance
• Surplus (Excess of Income over Expenditure)

Conversion from Receipts and Payments Account to Income and Expenditure Account (Adjustments)

To convert items from a Receipts and Payments Account to an Income and Expenditure Account, several adjustments are made to reflect the accrual basis:

• Subscriptions:
  • Add outstanding subscriptions for the current year.
  • Subtract outstanding subscriptions for the previous year.
  • Subtract subscriptions received in advance for the current year (relating to next period).
  • Add subscriptions received in advance for the previous year (relating to current period).
• Expenses (e.g., Salaries, Rent):
  • Add outstanding expenses for the current year.
  • Subtract outstanding expenses for the previous year.
  • Subtract prepaid expenses for the current year (relating to next period).
  • Add prepaid expenses for the previous year (relating to current period).
• Depreciation: Non-cash item not found in Receipts and Payments, but charged as an expense in Income and Expenditure Account.
• Profit/Loss on Sale of Assets: Calculated by comparing the selling price with the book value of the asset on the date of sale. Only the profit or loss is shown in the Income and Expenditure Account.
• Capital Items: Capital receipts (e.g., sale of fixed assets, specific donations for assets) and capital payments (e.g., purchase of fixed assets) are excluded from the Income and Expenditure Account.

Teaching Methods/Instructional Techniques

Discussion, Lecture, Demonstration, Question and Answer, Visual Aids

Instructional Procedures

Step 1: Introduction

Time: 5 minutes
Teaching Skill: Set Induction
Teacher’s Activity: The teacher greets the pupils and asks them to recall what a Receipts and Payments Account is.
Pupils’ Activity: Pupils respond by defining a Receipts and Payments Account as a summary of cash transactions.
Learning Point: Pupils recall prior knowledge related to non-profit organizations’ accounts.

Step 2: Meaning of Income and Expenditure Account

Time: 7 minutes
Teaching Skill: Explanation
Teacher’s Activity: The teacher explains the meaning of an Income and Expenditure Account, highlighting its similarity to a Profit and Loss Account and its accrual basis.
Pupils’ Activity: Pupils listen attentively and ask questions for clarification.
Learning Point: Pupils understand the definition and basis of an Income and Expenditure Account.

Step 3: Differences between Receipts and Payments Account and Income and Expenditure Account

Time: 8 minutes
Teaching Skill: Comparison/Analysis
Teacher’s Activity: The teacher uses a chart to highlight and explain the key differences between Receipts and Payments Account and Income and Expenditure Account.
Pupils’ Activity: Pupils observe the chart and participate in identifying the differences.
Learning Point: Pupils can differentiate between the two types of accounts.

Step 4: Format of Income and Expenditure Account

Time: 10 minutes
Teaching Skill: Demonstration/Illustration
Teacher’s Activity: The teacher displays a chart showing the format of an Income and Expenditure Account, explaining common items found on both the income and expenditure sides.
Pupils’ Activity: Pupils copy the format into their notebooks and ask questions about specific items.
Learning Point: Pupils learn the standard structure and common components of the account.

Step 5: Adjustments/Conversion from Receipts and Payments to Income and Expenditure

Time: 5 minutes
Teaching Skill: Explanation/Problem-solving
Teacher’s Activity: The teacher explains how to make adjustments for items like subscriptions, outstanding expenses, and depreciation when converting from Receipts and Payments to Income and Expenditure.
Pupils’ Activity: Pupils listen and note down the key adjustment principles.
Learning Point: Pupils grasp the concept of accrual adjustments for non-profit accounts.

Step 6: Class Activity

Time: 5 minutes
Teaching Skill: Practical Application
Teacher’s Activity: The teacher provides a simple list of items (e.g., subscriptions received, salaries paid, outstanding salaries) and asks pupils to identify whether they are revenue or capital and how they would be treated in the Income and Expenditure Account.
Pupils’ Activity: Pupils work individually or in pairs to classify the items and discuss their treatment.
Learning Point: Pupils apply their understanding of income and expenditure items and adjustments.

Step 7: Evaluation/Review

Time: 5 minutes
Teaching Skill: Questioning/Assessment
Teacher’s Activity: The teacher evaluates the learning by asking the following questions:

1. What is an Income and Expenditure Account?
2. State three differences between a Receipts and Payments Account and an Income and Expenditure Account.
3. Mention two items found on the expenditure side of an Income and Expenditure Account.
4. How would outstanding subscriptions for the current year be treated when preparing an Income and Expenditure Account?

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Pupils demonstrate understanding of the lesson.

Step 8: Conclusion

Time: 0 minutes
Teaching Skill: Summarization
Teacher’s Activity: The teacher briefly summarizes the key points of the lesson and encourages pupils to practice more examples.
Pupils’ Activity: Pupils listen and prepare for the next lesson.
Learning Point: Reinforcement of lesson content.

Lesson Keywords

• Income and Expenditure Account – A summary of revenue income and expenses for a non-profit organization, prepared on an accrual basis.
• Non-Profit Organization – An entity whose primary objective is service to its members or the public, not making a profit.
• Receipts and Payments Account – A summary of all cash receipts and cash payments over a period, similar to a cash book.
• Accrual Basis – An accounting method where revenues and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.
• Surplus – The excess of income over expenditure in an Income and Expenditure Account.
• Deficit – The excess of expenditure over income in an Income and Expenditure Account.

Differentiation

For pupils who grasp the concepts quickly, the teacher can provide additional exercises involving more complex adjustments. For those who require more support, the teacher can offer simplified examples and one-on-one guidance, focusing on the basic definitions and format.

Note for teachers using this lesson plan

Ensure that pupils understand the core difference between cash basis and accrual basis accounting, as this is fundamental to understanding the Income and Expenditure Account. Use real-life examples of non-profit organizations (e.g., schools, clubs, churches) to make the lesson more relatable. Emphasize the adjustments needed to convert from a cash-based Receipts and Payments Account to an accrual-based Income and Expenditure Account.