Class: Senior Secondary School 1 (SS1, SS 1, SSS1, SSS 1)
Term: 2nd Term
Week: 10
Age: 15 years
Duration: 45 minutes
Subject: Financial Accounting
Curriculum Theme: Financial Accounting
Previous Lesson: Profit and Loss Account.
Topic: TRADING, PROFIT AND LOSS ACCOUNT
Subject Matter: Preparation of Trading Account, Preparation of Profit and Loss Account, Combined Trading Profit and Loss Account, Determination of Net Profit, Determination of Net Loss

Specific Objectives

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

Cognitive Domain:

Define Trading, Profit and Loss Account.
State the purpose of a Trading Account.
Identify the items found in a Trading Account.
State the purpose of a Profit and Loss Account.
Identify the items found in a Profit and Loss Account.
Explain how gross profit/loss and net profit/loss are determined.

Affective Domain:

Appreciate the importance of preparing Trading, Profit and Loss Accounts for businesses.
Show interest in the accurate calculation of business profits or losses.

Psychomotor Domain:

Prepare a simple Trading Account to determine gross profit or loss.
Prepare a simple Profit and Loss Account to determine net profit or loss.
Prepare a combined Trading, Profit and Loss Account accurately.

Participate actively in class discussions on financial statements.

Reference Materials

The following resources were used in planning this lesson:

9 Years Basic Education Curriculum for Financial Accounting (Senior Secondary).
State Unified Scheme of Work for Senior Secondary Schools.
Simplified Financial Accounting for Senior Secondary Schools by F. O. Akindele.
Financial Accounting for Senior Secondary Schools by O. A. Longe.
https://www.youtube.com/watch?v=example1
https://www.accountingcoach.com/trading-profit-and-loss-account/explanation

Instructional Materials

The teacher will teach this lesson with the aid of:

Charts showing the format of a Trading Account.
Charts showing the format of a Profit and Loss Account.
Charts showing a combined Trading, Profit and Loss Account.
A whiteboard and markers.

Rationale for the Lesson

This lesson helps pupils understand how businesses determine their financial performance over a period. Learning to prepare the Trading, Profit and Loss Account enables pupils to calculate gross profit or loss and net profit or loss, which are important for assessing a business’s success and making informed decisions.

Prerequisite/Previous Knowledge

Pupils have prior knowledge of ledgers, trial balance, and the classification of accounts into income and expenses.

Lesson Content/Board Summary

TRADING, PROFIT AND LOSS ACCOUNT

Meaning of Trading, Profit and Loss Account

The Trading, Profit and Loss Account is a financial statement prepared by businesses to determine the gross profit/loss and net profit/loss for a specific accounting period, usually a year.

Purpose of a Trading Account

The Trading Account is prepared to calculate the gross profit or gross loss of a business. Gross profit is the profit made from buying and selling goods before deducting operating expenses.

Items Found in a Trading Account

The following are common items found in a Trading Account:

Opening Stock: Value of unsold goods at the beginning of the accounting period.
Purchases: Cost of goods bought for resale during the period.
Returns Outwards (Purchases Returns): Goods returned to suppliers.
Carriage Inwards: Cost of transporting goods purchased to the business premises.
Sales: Revenue from goods sold during the period.
Returns Inwards (Sales Returns): Goods returned by customers.
Closing Stock: Value of unsold goods at the end of the accounting period.

Determination of Gross Profit or Gross Loss

Gross Profit is calculated when Sales Revenue (less Returns Inwards) is greater than the Cost of Goods Sold. Gross Loss occurs when the Cost of Goods Sold is greater than Sales Revenue (less Returns Inwards).

Cost of Goods Sold = Opening Stock + Net Purchases (Purchases – Returns Outwards + Carriage Inwards) – Closing Stock.

Gross Profit/Loss = Net Sales – Cost of Goods Sold.

Purpose of a Profit and Loss Account

The Profit and Loss Account is prepared to determine the net profit or net loss of a business for an accounting period. It takes the gross profit/loss from the Trading Account and adjusts it for all other operating expenses and incomes.

Items Found in a Profit and Loss Account

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

Gross Profit/Loss: Transferred from the Trading Account.
Operating Expenses:
- Salaries and Wages
- Rent and Rates
- Electricity and Water
- Insurance
- Depreciation
- Bad Debts
- Discount Allowed
- Carriage Outwards
Other Incomes:
- Discount Received
- Commission Received
- Rent Received

Determination of Net Profit or Net Loss

Net Profit is calculated when Gross Profit plus Other Incomes is greater than Total Operating Expenses. Net Loss occurs when Total Operating Expenses are greater than Gross Profit plus Other Incomes.

Net Profit/Loss = Gross Profit + Other Incomes – Total Operating Expenses.

Combined Trading, Profit and Loss Account

Often, the Trading Account and the Profit and Loss Account are combined into a single statement to present a complete view of the business’s profitability. This combined statement shows both gross and net profit/loss.

Teaching Methods/Instructional Techniques

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

Instructional Procedures

Step 1: Introduction

Time: 5 minutes
Teaching Skill: Set Induction/Recall
Teacher’s Activity: The teacher greets the pupils and asks them to recall what they learned about the trial balance and different types of accounts (income, expense, asset, liability). The teacher then introduces the topic, explaining that businesses use financial statements to know how well they are performing.
Pupils’ Activity: Pupils respond to questions about previous lessons and listen attentively to the introduction.
Learning Point: Pupils connect previous knowledge to the new topic and understand the relevance of financial statements.

Step 2: Explanation of Trading Account

Time: 10 minutes
Teaching Skill: Explanation/Demonstration
Teacher’s Activity: The teacher explains the meaning and purpose of a Trading Account, emphasizing its role in determining gross profit or loss. The teacher lists and explains the key items that appear in a Trading Account (e.g., opening stock, purchases, sales, closing stock, carriage inwards) and explains how gross profit or loss is calculated, using a chart to illustrate the format.
Pupils’ Activity: Pupils listen, take notes, and ask questions for clarification.
Learning Point: Pupils understand the concept, purpose, and components of a Trading Account and how to calculate gross profit/loss.

Step 3: Practical Demonstration of Trading Account Preparation

Time: 7 minutes
Teaching Skill: Demonstration/Modelling
Teacher’s Activity: The teacher provides a simple example of figures for a Trading Account and demonstrates on the board how to prepare it step-by-step, arriving at the gross profit or loss.
Pupils’ Activity: Pupils observe the demonstration, copy the example, and follow the calculations.
Learning Point: Pupils learn the practical application of preparing a Trading Account.

Step 4: Explanation of Profit and Loss Account

Time: 7 minutes
Teaching Skill: Explanation/Illustration
Teacher’s Activity: The teacher explains the meaning and purpose of a Profit and Loss Account, highlighting that it extends the Trading Account to determine the net profit or net loss. The teacher discusses various operating expenses (e.g., salaries, rent, depreciation) and other incomes (e.g., discount received) that appear in this account, using a chart to illustrate the format.
Pupils’ Activity: Pupils listen, take notes, and identify the differences between items in the Trading and Profit and Loss Accounts.
Learning Point: Pupils understand the concept, purpose, and components of a Profit and Loss Account and how it leads to net profit/loss.

Step 5: Practical Demonstration of Profit and Loss Account Preparation

Time: 5 minutes
Teaching Skill: Demonstration/Application
Teacher’s Activity: The teacher takes the gross profit/loss from the previous example and adds figures for expenses and other incomes. The teacher then demonstrates on the board how to prepare the Profit and Loss Account to determine the net profit or loss.
Pupils’ Activity: Pupils observe the demonstration, noting the inclusion of various expenses and incomes.
Learning Point: Pupils learn the practical application of preparing a Profit and Loss Account.

Step 6: Combined Trading, Profit and Loss Account

Time: 4 minutes
Teaching Skill: Integration/Explanation
Teacher’s Activity: The teacher explains that both accounts are often combined and shows the format of a combined Trading, Profit and Loss Account on a chart, emphasizing the flow from gross profit to net profit.
Pupils’ Activity: Pupils observe the combined format and ask questions.
Learning Point: Pupils understand the integrated presentation of the Trading and Profit and Loss Accounts.

Step 7: Evaluation/Review

Time: 5 minutes

Teaching Skill: Questioning/Assessment

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

What is the main purpose of preparing a Trading Account?
List three items found on the debit side of a Trading Account.
How is gross profit determined?
What is the main purpose of preparing a Profit and Loss Account?
Mention two examples of expenses found in a Profit and Loss Account.
Explain how net profit is calculated.

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Pupils demonstrate understanding of the lesson.

Step 8: Conclusion

Time: 2 minutes
Teaching Skill: Summarization/Assignment
Teacher’s Activity: The teacher summarizes the key points of the lesson, reiterating the importance of the Trading, Profit and Loss Account in determining business profitability. The teacher gives pupils an assignment to prepare a simple combined Trading, Profit and Loss Account using given figures.
Pupils’ Activity: Pupils listen to the summary and copy the assignment.
Learning Point: Pupils consolidate their learning and prepare for further practice.

Lesson Keywords

Trading Account – A financial statement prepared to calculate the gross profit or gross loss of a business.
Profit and Loss Account – A financial statement prepared to calculate the net profit or net loss of a business.
Gross Profit – The profit made from buying and selling goods before deducting operating expenses.
Gross Loss – Occurs when the cost of goods sold is more than the net sales.
Net Profit – The final profit remaining after all operating expenses and other incomes have been accounted for.
Net Loss – The final loss incurred after all operating expenses and other incomes have been accounted for.
Cost of Goods Sold – The direct costs attributable to the production of the goods sold by a company.

Differentiation

For pupils who grasp concepts quickly, the teacher can provide more complex scenarios or additional items to include in their accounts. For those needing more support, the teacher will provide simplified examples and one-on-one guidance during the practical exercises.

Note for teachers using this lesson plan

Ensure to use clear and relevant examples that resonate with the pupils’ understanding of local businesses. Encourage active participation and provide ample opportunities for pupils to practice preparing the accounts.