Class: Senior Secondary School 1 (SS1, SS 1, SSS1, SSS 1)
Term: Second Term
Week: 9
Age: 15 years
Duration: 45 minutes
Subject: Financial Accounting
Curriculum Theme: Financial Accounting
Previous Lesson: Trading Account.
Topic: PROFIT AND LOSS ACCOUNT
Subject Matter: meaning of profit and loss account, identification of profit and loss items, format of profit and loss account, vertical method, t shape method
Specific Objectives
By the end of the lesson, pupils should be able to:
Cognitive Domain:
- Define Profit and Loss Account.
- Identify various items found in the Profit and Loss Account.
- State the purpose of preparing a Profit and Loss Account.
- Explain the vertical and T-shape methods for preparing a Profit and Loss Account.
Affective Domain:
- Appreciate the importance of accurately preparing a Profit and Loss Account.
- Show interest in learning how to prepare financial statements.
Psychomotor Domain:
- Draw the format of a Profit and Loss Account using both vertical and T-shape methods.
- Prepare a simple Profit and Loss Account from given information.
Social Domain:
- Collaborate with peers to identify and classify Profit and Loss items.
Reference Materials
The following resources were used in planning this lesson:
- 9 Years Basic Education Curriculum for Senior Secondary School Financial Accounting.
- State Unified Scheme of Work for Senior Secondary School Financial Accounting.
- Olakunori, O. K. (2018). Financial Accounting for Senior Secondary Schools. Apex Publishers.
- https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.accountingtools.com/articles/profit-and-loss-account
- https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.investopedia.com/terms/p/profitandlossstatement.asp
Instructional Materials
The teacher will teach this lesson with the aid of:
- Charts showing the format of a Profit and Loss Account.
- Whiteboard and markers.
- Textbook.
Rationale for the Lesson
This lesson helps pupils understand how a business calculates its net profit or loss for a period. Knowing this is important for assessing a business’s financial performance and making informed decisions about its operations.
Prerequisite/Previous Knowledge
Pupils have basic knowledge of accounting principles, ledger accounts, and the preparation of a Trading Account.
Lesson Content/Board Summary
PROFIT AND LOSS ACCOUNT
Meaning of Profit and Loss Account
The Profit and Loss Account is a financial statement that shows the net profit or net loss of a business over a specific accounting period, usually a year. It summarizes all revenues and expenses not included in the Trading Account to arrive at the final profit or loss.
Items found in the Profit and Loss Account
The following are common items found in the Profit and Loss Account:
- Expenses:
- Salaries and Wages (for office and sales staff)
- Rent and Rates
- Insurance
- Depreciation
- Bad Debts
- Discount Allowed
- Advertising Expenses
- Office Expenses
- Interest on Loan
- Incomes:
- Discount Received
- Rent Received
- Commission Received
- Interest Received
Purpose of Profit and Loss Account
The main purpose of preparing a Profit and Loss Account is to:
- Determine the net profit or net loss made by the business during an accounting period.
- Help management make decisions about the business’s operations and future.
- Provide information to stakeholders about the business’s profitability.
Format of Profit and Loss Account (Vertical Method)
The vertical method presents the Profit and Loss Account in a single column, starting with Gross Profit and subtracting all operating expenses, then adding other incomes to arrive at Net Profit or Loss.
Example Structure:
PROFIT AND LOSS ACCOUNT
for the year ended 31st December, 20XX
-------------------------------------------
Gross Profit b/d XXX
Add: Other Incomes:
Discount Received XXX
Rent Received XXX
Commission Received XXX
---
XXX
Less: Operating Expenses:
Salaries XXX
Rent and Rates XXX
Insurance XXX
Depreciation XXX
Bad Debts XXX
Discount Allowed XXX
Advertising XXX
---
XXX
---
Net Profit / (Net Loss) XXX
-------------------------------------------
Format of Profit and Loss Account (T-Shape Method)
The T-shape method presents the Profit and Loss Account with two sides, similar to a ledger account. The left side (debit) records all expenses, and the right side (credit) records Gross Profit and all other incomes.
Example Structure:
PROFIT AND LOSS ACCOUNT
for the year ended 31st December, 20XX
-------------------------------------------------------------------
| Dr. | Cr. |
|-----------------------------------|------------------------------|
| Salaries XXX | Gross Profit b/d XXX |
| Rent and Rates XXX | Discount Received XXX |
| Insurance XXX | Rent Received XXX |
| Depreciation XXX | Commission Received XXX |
| Bad Debts XXX | |
| Discount Allowed XXX | |
| Advertising XXX | |
| Net Profit (if Credit > Debit) XXX | |
| | Net Loss (if Debit > Credit) XXX|
|-----------------------------------|------------------------------|
| XXX | XXX |
-------------------------------------------------------------------
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 reminds them of the previous lesson on the Trading Account, asking them to recall what the Trading Account helps to determine. The teacher then introduces the topic by explaining that after determining the gross profit, businesses need to find their true profit or loss.
Pupils’ Activity: Pupils respond to questions about the Trading Account and listen attentively to the introduction.
Learning Point: Pupils recall previous knowledge and are prepared for the new topic.
Step 2: Meaning of Profit and Loss Account
Time: 10 minutes
Teaching Skill: Explanation/Definition
Teacher’s Activity: The teacher explains the meaning of the Profit and Loss Account, emphasizing that it shows the net profit or loss for a period after considering all operating expenses and other incomes. The teacher writes the definition on the board.
Pupils’ Activity: Pupils listen, take notes, and ask questions for clarification.
Learning Point: Pupils understand what a Profit and Loss Account is and its purpose.
Step 3: Identification of Profit and Loss Items
Time: 10 minutes
Teaching Skill: Listing/Classification
Teacher’s Activity: The teacher displays charts showing various items that appear in the Profit and Loss Account. The teacher guides pupils to identify and classify these items into expenses and other incomes, explaining each item briefly.
Pupils’ Activity: Pupils observe the charts, identify the items, and classify them under the guidance of the teacher.
Learning Point: Pupils can identify and differentiate between various Profit and Loss Account items.
Step 4: Format of Profit and Loss Account (Vertical Method)
Time: 7 minutes
Teaching Skill: Demonstration/Explanation
Teacher’s Activity: The teacher explains the vertical format of the Profit and Loss Account, highlighting how gross profit is adjusted with other incomes and then reduced by operating expenses to arrive at net profit or loss. The teacher draws a simple vertical format on the board.
Pupils’ Activity: Pupils observe, copy the format, and ask questions.
Learning Point: Pupils understand the structure and presentation of the vertical Profit and Loss Account.
Step 5: Format of Profit and Loss Account (T-Shape Method)
Time: 5 minutes
Teaching Skill: Demonstration/Explanation
Teacher’s Activity: The teacher explains the T-shape format of the Profit and Loss Account, showing how expenses are debited and incomes/gross profit are credited. The teacher draws a simple T-shape format on the board.
Pupils’ Activity: Pupils observe, copy the format, and compare it with the vertical method.
Learning Point: Pupils understand the structure and presentation of the T-shape Profit and Loss Account.
Step 6: Evaluation/Review
Time: 5 minutes
Teaching Skill: Questioning/Assessment
Teacher’s Activity: The teacher evaluates the learning by asking the following questions:
- Define Profit and Loss Account.
- Mention three items found on the debit side of a T-shape Profit and Loss Account.
- State two purposes of preparing a Profit and Loss Account.
- Briefly explain the difference between the vertical and T-shape methods of preparing a Profit and Loss Account.
Pupils’ Activity: Pupils answer orally and in writing.
Learning Point: Pupils demonstrate understanding of the lesson.
Step 8: Conclusion
Time: 3 minutes
Teaching Skill: Summarization/Assignment
Teacher’s Activity: The teacher summarizes the main points of the lesson, reiterating the definition, items, and formats of the Profit and Loss Account. The teacher assigns homework: “From your textbook, list five expenses and three incomes that appear in the Profit and Loss Account.”
Pupils’ Activity: Pupils listen to the summary and copy the assignment.
Learning Point: Pupils consolidate their understanding and prepare for further practice.
Lesson Keywords
- Profit and Loss Account – A financial statement showing the net profit or net loss of a business for a specific period.
- Net Profit – The final profit remaining after all expenses have been deducted from all revenues.
- Net Loss – The final loss incurred when total expenses exceed total revenues.
- Operating Expenses – Expenses incurred in the normal course of running a business, such as salaries, rent, and insurance.
- Other Incomes – Revenues generated from sources other than the primary business operations, such as rent received or discount received.
Differentiation
For pupils who grasp concepts quickly, the teacher can provide more complex examples or ask them to identify items from a given trial balance. For pupils needing more support, the teacher will provide simplified examples, offer individual guidance, and use visual aids more extensively to explain the different formats.
Note for teachers using this lesson plan
Ensure pupils have a solid understanding of the Trading Account before proceeding to the Profit and Loss Account. Encourage active participation by asking questions and allowing pupils to practice drawing the formats. Real-life examples of businesses can be used to make the lesson more relatable.
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