Profit and Loss Statement
Properly place income and expense line items on a profit and loss statement and interpret the
data correctly for future use.
In order to stay in business, a company must continue to make a profit
High sales does not necessarily mean profit
If a company is not making a profit, expenses need to be cut, which may include people
losing their jobs
Continuous profit cannot be ignored – comparisons between years will help head off
possible future problems
1. Correctly place income and expense line items on a profit and loss statement
2. Interpret a profit and loss statement to verify if a company has made a profit or a loss
3. Properly format an Excel spreadsheet using formulas to compare two years of data
4. Effectively manipulate data in a profit and loss statement to project future outcomes
5. Effectively utilize data to determine where in the company income and expenses changes
should occur to positively affect profit
TECHNICAL STANDARDS ADDRESSED:
CTE Technical Standards: Accounting Services Pathway standard:
A1.4 Prepare, analyze, and interpret financial statements for various business entities.
Foundation Standards: CAHSEE Math
1.6 Calculate the percentage of increase and decrease of a quantity
1. Student Computers with Microsoft Excel
3. Beginning profit and loss numbers
The ability to create and correctly interpret a profit and loss statement is a very marketable
skill that will earn students $9-$12 per hour to start
Reflect on practical uses and value of a profit and loss statement to a business
Knowledge of the financial stability of a company is important before accepting a job with
that particular company
In owning a company, the proprietor must be able to see where all money is going
Business owners and managers must be able to quickly see if money being spent on
expenses is justified
PRESENTATION: (Teacher Activities)
1. Introduce vocabulary
f. Bad debt
g. Returns and allowances
2. Discuss various uses of a profit and loss statement. What types of businesses use a P&L?
3. Look at a sample completed P&L. Briefly discuss each line item and what is consists of.
4. Review line items that total sections (Total income; total expenses; total profit or loss)
5. Student Activity #1
6. As the students create their profit and loss statement, the teacher will create it via the
projector and laptop/teacher workstation.
7. Assessment #1
8. Confirm at the end of the P&L that all students have the correct balances and that they have
achieved those balances via Excel formulas by a verbal and visual confirmation of each
9. Show completed, correct P&L (attached) for student comparison.
10. Take any questions, comments, fix issues and problems.
11. Assessment #2
12. Discuss the reasons why a company would want to compare the P&L from two years
13. Application #2
14. Specific numbers for year #2 will be displayed via projector in paragraph format:
a. Using the following information, create a P&L for the fiscal year 2000: Sales,
$105,000; Bad Debt, $2,000; Salaries, $30,000; Auto expense, $12,000; Equipment,
$6,000; Supplies, $2,300; Insurance, $5,500; Utilities, $12,000
15. Once students are finished entering the second year, confirm through visual and oral
communication that their spreadsheet formulas are correct.
16. Demonstrate via the overhead projector the formula to get the percent for each P&L line
item comparing year #1 to year #2.
17. Demonstrate only the first two line item.
18. Student Activity #3
19. Review entire lesson
20. Discuss how a business could evaluate this information and use it.
21. Given the scenario of a company with a loss, discuss which line item could be changed to
positively affect the bottom line. Begin with the general section (income or loss) and move
toward specific line item (equipment, insurance, salaries). Why are their certain line items
that cannot be considered (cannot be changed – fixed costs vs. variable costs)
22. As a group, edit the current spreadsheet to increase profits without jeopardizing necessary
23. Give final assessment
APPLICATION: (Student Activities)
Student Activity #1
1. Have students open up Microsoft Excel
2. Review basics of moving throughout Excel and how to create formulas
3. As a class, have the students create a profit and loss statement from information presented
by the teacher.
Student Activity #2
1. Give the students line item numbers for a second year.
2. Have the students create a second P&L in the next available column in their current Excel
3. Students will create this second set of numbers on their own utilizing what they learned from
their creation of the first P&L.
Student Activity #3
1. Student will complete all comparison percentages for the remaining line items on their own.
1. While the students are creating the first practice P&L along with the teacher, walk to the
back of the room to view all student workstations. Confirm that they are all at the same spot
or moving ahead.
1. When initial P&L is complete, have a round table discussion where students will
successfully answer specific questions regarding the creation of the P&L.
a. What is the purpose of a P&L?
b. What does the P&L show a business person?
c. Where in the P&L would I enter may total income from merchandise sales?
d. Where in a P&L would I enter employee salaries?
e. Where in a P&L would I enter (any expenses)?
f. How are discounts or coupon amounts handled in a P&L?
g. What is the formula in Excel to get total income?
h. How can I tell from a P&L if the company has made money or not?
i. What does a negative balance at the bottom of a P&L mean?
j. How can a businessperson change a negative balance to a positive balance?
1) Create a profit and loss statement comparing income and expenses from 1999 to 2000 using
Microsoft Excel using the following values. Label each line item. Create a final column
showing the percent changes for each line item from the first year to the second year (1.6).
a. Company A: Using the following information, create a P&L for the fiscal year 1999:
Sales, $1,205,000; Bad Debt, $25,000; Salaries, $330,000; Auto expense, $112,000;
Equipment, $56,000; Supplies, $232,300; Insurance, $15,500; Utilities, $232,000
b. Company A: Using the following information, create a P&L for the fiscal year 2000:
Sales, $1,105,000; Bad Debt, $32,000; Salaries, $430,000; Auto expense, $242,000;
Equipment, $24,000; Supplies, $282,600; Insurance, $16,500; Utilities, $265,000
2) Based on the P&L results, is Company A making a profit or a loss in 1999? In 2000? (1.d)
3) If there is a year that contains a loss, how could you adjust one or more expenses to become
profitable without jeopardizing income? (5.1 & 5.3)
1) Review the line items of a P&L. Discuss the test and answer questions that they may have
now that they have taken the final assessment.
2) Reiterate the need for written evidence of the financial status of a company.
3) Introduce the balance sheet and discuss the connection between the P&L and the balance
sheet. Balance sheet will be the next financial document discussed.
LESSON PLAN REFLECTION:
This lesson plan is very long and more detailed than will actually be necessary when it is actually
taught. The biggest factor will be making sure the students are following at a good pace and
understanding the material before moving on to the next step. Many students might “fake” their
understanding of Excel formulas, which will really hurt them in the long run. The focus throughout
the beginning of the lesson and the first two assessments will be to make sure they understand the
reason and consequences of formulas (if something changes, you want your totals to change
accordingly) and to make sure they are using formulas and not just using a calculator and entering
Profit and Loss Rubric
Student Name: __________________________________________________________
5 10 15 20 Points
Student does Student is Student is at Student
not have grasp uncomfortable ease with demonstrates full
of information; with content content, but knowledge (more
student cannot and is able to fails to than required).
Content answer demonstrate elaborate.
questions about basic
Spreadsheet Spreadsheet Spreadsheet Spreadsheet
does not contains contains formulas are all
contain any correct formulas, but correct.
formulas. numbers, but they are
not all contain incorrect.
Spreadsheet is Spreadsheet is Spreadsheet Spreadsheet
Format missing six or missing two-six format is meets all
more formatting requirements. professional formatting
requirements. but not to requirements.
Basic Assessment Assessment Assessment
assessment question questions and questions are all
questions are answers reflect spreadsheet correct. Student
not answered or student show basic has full
are answered understanding understanding understanding of
Understanding incorrectly. of line items of material but the line items,
Student does but not of total lack attention totals, and future
not grasp the values or to details or use of the profit
meaning future use. future use. and loss
behind the statement.
1999 2000 Difference
Sales 1205000 1105000 91.70%
Less bad debt: 25000 32000 128.00%
Total Income 1180000 1073000 90.93%
Salaries 330000 430000 130.30%
Auto expense 112000 242000 216.07%
Equipment 56000 24000 42.86%
Supplies 232300 282600 121.65%
Insurance 15500 16500 106.45%
Utilities 232000 265000 114.22%
Total 977800 1260100 128.87%
Total 202200 -187100 -92.53%
Item Name Year 1 Year 2 Difference
Sales 12050 10500 87.14%
Less bad debt: 2500 2000 80.00%
Total Income 11800 10300 87.29%
Salaries 33000 30000 90.91%
Auto expense 11200 12000 107.14%
Equipment 5600 6000 107.14%
Supplies 2323 2300 99.01%
Insurance 5550 5500 99.10%
Utilities 13200 12000 90.91%
Total Expenses 70873 67800 95.66%
Total 47127 35200 74.69%