Business Studies - Junior Secondary 3 - Trading, profit and loss account

TERM: 2^ND TERM

WEEK EIGHT

Class: Junior Secondary School 3

Age: 14 years

Duration: 40 minutes of 5 periods each

Date:

Subject: BUSINESS STUDIES

Topic: TRADING, PROFIT AND LOSS ACCOUNT

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

I.) Explain the meaning of trading, profit and loss account

II.) State the purpose of trading, profit and loss account

III.) Describe trading account

IV.) State the rules for constructing simple profit and loss account

V.) Determine net sales

VI.)  Determine net profit or loss and gross profit.                               

INSTRUCTIONAL TECHNIQUES: Identification, explanation, questions and answers, demonstration, videos from source

INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures,

INSTRUCTIONAL PROCEDURES

PERIOD 1-2

NOTE

TRADING, PROFIT AND LOSS ACCOUNT

The Trading, Profit and Loss Account, commonly known as the Income Statement, is a financial statement that summarizes the revenues, expenses, and resulting profit or loss of a business for a specific period, typically one fiscal year. It provides valuable insights into the operational performance and profitability of the business.

Purpose of Trading, Profit and Loss Account

1. Performance Evaluation: It helps stakeholders (owners, investors, creditors) assess the financial performance of the business over a period.
2. Decision Making: Provides information for making decisions related to pricing, operations, investments, and financial strategies.
3. Financial Reporting: Essential for compliance with accounting standards and regulations, providing transparency to external parties.

Trading Account

The Trading Account is a component of the Trading, Profit and Loss Account. It specifically calculates the Gross Profit (or Gross Loss) by comparing the cost of goods sold with net sales revenue.

Rules for Constructing a Simple Profit and Loss Account

1. Revenue: List all revenues earned during the period. These can include sales revenue, service fees, interest income, etc.
2. Cost of Goods Sold: Calculate the cost of goods sold (COGS), which includes direct costs associated with producing goods or services sold during the period.
3. Gross Profit: Calculate gross profit by subtracting COGS from net sales revenue.
4. Operating Expenses: Deduct all operating expenses incurred during the period, such as rent, utilities, salaries, and marketing expenses.
5. Operating Profit (or Loss): Determine operating profit by subtracting operating expenses from gross profit.
6. Non-Operating Items: Include non-operating income (e.g., interest income) and non-operating expenses (e.g., interest expenses).
7. Net Profit (or Loss): Calculate net profit by adding non-operating income and subtracting non-operating expenses from operating profit.

Calculation Examples:

To calculate Cost of Goods Sold (COGS):

COGS = Opening Inventory + Purchases - Closing Inventory

- Opening Inventory: Value of inventory at the beginning of the accounting period.

- Purchases: Total purchases of goods during the accounting period.

- Closing Inventory: Value of inventory at the end of the accounting period.

To determine Net Sales:

Net Sales = Total Sales Revenue - Sales Returns and Allowances - Sales Discounts

- Sales Returns and Allowances: Amount of revenue expected to be returned due to unsatisfactory goods or services.

- Sales Discounts: Reduction in sales price offered to customers for early payment.

To determine Net Profit (or Loss) and Gross Profit:

Gross Profit = Net Sales - Cost of Goods Sold (COGS

Net Profit (or Loss = Gross Profit - Operating Expenses + Non-Operating Income - Non-Operating Expenses

- Gross Profit: Represents the profit made from core business operations, before deducting operating expenses.

- Net Profit (or Loss): Final profitability measure after considering all revenues, expenses, and taxes.

EVALUATION: 1. Explain the meaning of trading, profit and loss account

2. Mention 3 purpose of trading, profit and loss account
3. What is  trading account?
4. Describe how to determine Net Profit (or Loss) and Gross Profit

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively