Lesson Note on Profit and Loss Account: Formats and Net Profit Determination for SS1

Class: Senior Secondary School 1 (SS1 / SSS 1)
Term: 3rd Term
Week: 9
Age: 15 years
Duration: 45 minutes
Subject: Book Keeping
Curriculum Theme: Trade
Previous Lesson: Profit and Loss Account: Meaning, Purpose and Terminologies.
Topic: Profit and Loss Account
Subject Matter: P&L formats, Net profit and loss determination

Specific Objectives

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

Cognitive Domain:

• Define Profit and Loss Account.
• State the items found in a Profit and Loss Account.
• Explain the purpose of preparing a Profit and Loss Account.
• Identify the various formats for preparing a Profit and Loss Account.

Affective Domain:

• Appreciate the importance of determining net profit or net loss for a business.
• Show interest in preparing accurate financial statements.
• Recognize the need for proper classification of expenses and incomes.

Psychomotor Domain:

• Prepare a simple Profit and Loss Account using given information.
• Calculate net profit or net loss from a trial balance.
• Determine the effect of different items on the final net profit or loss.

Social Domain:

• Discuss with peers the impact of different expenses on profitability.
• Collaborate in solving problems related to Profit and Loss Account preparation.

Reference Materials

The following resources were used in planning this lesson:

• 9 Years Basic Education Curriculum for Business Studies.
• State Unified Scheme of Work for Senior Secondary Book Keeping.
• Simplified and Amplified Book-Keeping and Accounts for Senior Secondary Schools by F.A. Longe.
• Financial Accounting for Senior Secondary Schools by O. A. Longe.

Instructional Materials

The teacher will teach this lesson with the aid of:

• A chart showing a sample Profit and Loss Account.
• Whiteboard and markers.
• Textbooks on Book Keeping.
• Prepared examples and exercises.

Rationale for the Lesson

Understanding the Profit and Loss Account helps pupils know how to calculate the actual profitability of a business. This knowledge is important for making informed business decisions and understanding the financial health of an enterprise, which is a valuable life skill.

Prerequisite/Previous Knowledge

Pupils should have prior knowledge of basic accounting concepts, the preparation of a Trading Account, and the determination of gross profit or gross loss.

Lesson Content/Board Summary

Profit and Loss Account

Definition 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 (incomes) and expenses incurred during that period.

Items Found in a Profit and Loss Account

The Profit and Loss Account includes all indirect expenses and incomes of the business. These are generally items that are not directly related to the buying and selling of goods.

The following are common items found in a Profit and Loss Account:

• Expenses:
  • Salaries and Wages (office staff)
  • Rent and Rates
  • Insurance
  • Depreciation
  • Discount Allowed
  • Advertising
  • Bad Debts
  • Interest on Loans
  • General Expenses
  • Carriage Outwards
• Incomes:
  • Discount Received
  • Rent Received
  • Interest Received
  • Commission Received
  • Gross Profit (transferred from Trading Account)

Format of a Profit and Loss Account

The Profit and Loss Account can be presented in two main formats:

• T-Format (Horizontal Format): This format has two sides, a debit side (left) for expenses and a credit side (right) for incomes.
• Vertical Format: This format lists all incomes first, followed by all expenses, to arrive at the net profit or loss.

Determination of Net Profit or Net Loss

Net profit or net loss is determined by comparing the total incomes with the total expenses in the Profit and Loss Account.

• Net Profit: Occurs when total incomes (including gross profit) are greater than total expenses.
• Net Loss: Occurs when total expenses are greater than total incomes (including gross profit).

The net profit or net loss is then transferred to the Capital Account in the Balance Sheet.

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 welcomes the pupils and reviews the previous lesson on the Trading Account and how to determine Gross Profit or Gross Loss. The teacher then introduces the day’s topic, explaining that while the Trading Account shows gross profit, businesses need to know their true (net) profit after all other expenses and incomes.
Pupils’ Activity: Pupils respond to questions on the previous lesson and listen attentively to the introduction of the new topic.
Learning Point: Pupils recall previous knowledge and are prepared for the new lesson.

Step 2: Definition of Profit and Loss Account

Time: 7 minutes
Teaching Skill: Explanation/Definition
Teacher’s Activity: The teacher defines the Profit and Loss Account, explaining its purpose in determining the net profitability of a business over a period. The teacher emphasizes that it includes all indirect incomes and expenses.
Pupils’ Activity: Pupils listen, ask questions for clarity, and take notes.
Learning Point: Pupils understand the meaning and purpose of a Profit and Loss Account.

Step 3: Items in Profit and Loss Account

Time: 10 minutes
Teaching Skill: Listing/Categorization
Teacher’s Activity: The teacher lists and explains various indirect expenses (e.g., salaries, rent, depreciation, discount allowed) and incomes (e.g., discount received, rent received, commission received) that are found in the Profit and Loss Account. The teacher uses the chart to illustrate.
Pupils’ Activity: Pupils identify and differentiate between expenses and incomes relevant to the Profit and Loss Account and copy the points.
Learning Point: Pupils can identify and classify items that belong to the Profit and Loss Account.

Step 4: Format of Profit and Loss Account

Time: 8 minutes
Teaching Skill: Demonstration/Illustration
Teacher’s Activity: The teacher demonstrates the two main formats of the Profit and Loss Account (T-format and Vertical format) on the board, showing how items are arranged and where the Gross Profit/Loss from the Trading Account is transferred.
Pupils’ Activity: Pupils observe the formats, ask questions about their structure, and copy the outlines.
Learning Point: Pupils understand the layout and presentation of a Profit and Loss Account.

Step 5: Determination of Net Profit or Net Loss

Time: 5 minutes
Teaching Skill: Calculation/Application
Teacher’s Activity: The teacher explains how net profit or net loss is determined by comparing total incomes with total expenses. The teacher provides a simple example to illustrate the calculation.
Pupils’ Activity: Pupils follow the explanation and calculation, asking questions if they do not understand.
Learning Point: Pupils can determine whether a business has made a net profit or a net loss.

Step 6: Evaluation/Review

Time: 5 minutes

Teaching Skill: Questioning/Assessment

Teacher’s Activity: The teacher evaluates the learning by asking the following questions:

1. Define Profit and Loss Account.
2. Mention three expenses found in a Profit and Loss Account.
3. State two incomes that appear in a Profit and Loss Account.
4. Explain how net profit is determined.

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Pupils demonstrate understanding of the lesson.

Step 7: Conclusion

Time: 5 minutes
Teaching Skill: Summarization
Teacher’s Activity: The teacher summarizes the key points of the lesson, reiterating the importance of the Profit and Loss Account in showing the true profitability of a business. The teacher assigns homework: “Prepare a simple Profit and Loss Account from a given list of incomes and expenses for a period.”
Pupils’ Activity: Pupils listen to the summary and copy the homework assignment.
Learning Point: Pupils consolidate their understanding and are given an opportunity for practice.

Lesson Keywords

• Profit and Loss Account – A financial statement showing a business’s net profit or loss over a period.
• Net Profit – When total incomes exceed total expenses in the Profit and Loss Account.
• Net Loss – When total expenses exceed total incomes in the Profit and Loss Account.
• Indirect Expenses – Expenses not directly related to the production or purchase of goods, e.g., rent, salaries, advertising.
• Indirect Incomes – Incomes not directly from the main trading activity, e.g., discount received, rent received.

Differentiation

For pupils who grasp the concepts quickly, the teacher will provide more complex problems involving adjustments (e.g., accrued expenses, prepaid incomes). For pupils needing more support, the teacher will provide simplified examples and offer one-on-one guidance during practice sessions, focusing on identifying and classifying items correctly before preparing the full account.

Note for teachers using this lesson plan

Teachers should ensure that pupils clearly understand the distinction between items in the Trading Account and those in the Profit and Loss Account. Using practical examples relevant to local businesses can help pupils relate to the concepts better. Emphasize the systematic approach to preparing financial statements.