Activities to use when teaching profit and loss

Teaching students about profit and loss is giving them life skills. Lessons on how to stay solvent are useful even for those students who choose not to work in business. For those who do go on to employment in the commercial sector, having a knowledge of how costs and revenues affect the economic viability of a company is essential.

National Digital Learning Resources believe a good way to teach profit and loss is with the board game Monopoly. Their “Introducing Students to Financial Accounting” teaching pack includes a profit and loss account worksheet, on which students record income and expenses as the game progresses. A final financial statement sheet requires students to enter net profit after tax, closing capital and bank loans as they work out their total capital and liabilities. UK teachers should edit the “Introducing Students to Financial Accounting” teaching pack by finding the euro signs and replacing them with pound signs.

In preparation for developing business spreadsheet models, IBM’s Nick Read and Jonathan Batson suggest students should design a bubble diagram first. This can be a paper-based activity in which students articulate the overall structure of the spreadsheet model they intend to develop, showing how various inputs and outputs interact. As a teacher, you can specify what things need to be included, such as cost of raw materials, staff costs, additional costs, sales volume, list price and profit per pound.

Creating a spreadsheet model of a business operation is a popular activity to use when teaching profit and loss. You should set parameters for students’ spreadsheet models, such as pre-defined budgets and material costs. You should highlight poor spreadsheet design, such as when formulae are entered incorrectly. Further, you should introduce unexpected events like a sudden rise in production costs, to see what effect they have on the profit and loss accounts.

Letting the students run a real business in school is another popular activity. A school snack shop, handmade greetings card business or shoeshine company are three feasible ideas. To make the activity as educationally worthwhile as possible for the students, they need to be in charge of as many aspects of the business as you dare trust them with, so they can learn firsthand how to make a profit and avoid a loss. Further, studying published company accounts and working out how profit has been created, is always educationally valuable.