Understanding Profit and Loss

Lesson Objective

By the end of the lesson, Year 8 students will understand the basic concepts of profit and loss, how to calculate them, and how to balance a simple accounting equation. This lesson aligns with the Key Stage 3 Business Curriculum, with a focus on financial decision-making and practical application of numerical skills.

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Lesson Resources

Materials:

• Pre-prepared worksheets for profit/loss scenarios
• Interactive whiteboard or projector
• Mini whiteboards and markers (for group activities)
• A box of small classroom items (e.g., pencils, erasers) to simulate a shop
• Accounting Balance Cards (laminated cards with assets, liabilities, costs, and revenues)

Curriculum Alignment

This lesson is based on KS3 National Curriculum (UK): Develop numerical and problem-solving skills relevant to business contexts.

Specifically, it develops competence in:

• Financial literacy and accounting basics
• Real-life application of profit and loss balancing
• Core transferable skills: numerical fluency and logical reasoning

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Lesson Breakdown

1. Starter Activity: Business Brainstorm (5 minutes)

Objective: Engage students and link prior knowledge to today’s learning.

1. Scenario Prompt: Write on the whiteboard:
   "Imagine you are opening a business selling snacks to your classmates. What might you need to consider about money?"
2. Give students 2 minutes to confer with a partner and jot down answers on mini whiteboards. Prompts to guide them:
   • How would you price the snacks?
   • How much did you spend to buy them?
   • What happens to the money you’ve ‘made’?
3. Take answers from three or four groups. Summarise the key points: costs, prices, profit. Lead into today’s topic: Understanding how businesses measure profit and loss.

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2. Explicit Teaching: Understanding Profit and Loss (10 minutes)

Objective: Explain the key terms and methods of calculation in an accessible, age-appropriate format.

Teacher Explanation:

1. Use the following definitions:

   • Revenue/profit: Money a business earns by selling products or services.
   • Costs: Money spent producing or buying products to sell.
   • Profit: Revenue minus costs (written on whiteboard formulaically as “Profit = Revenue - Costs”).
   • Loss: When costs exceed revenue (i.e., you’ve spent more than you’ve earned).

2. Worked Example (Visual):
   Draw a simple shop on the board:

   • You sell 10 pencils at £1 each. Your revenue is £10.
   • You bought the pencils for £0.50 each, so your costs = £5.
   • Ask: “What’s your profit?” (Answer: £5).
     Demonstrate the formula: Revenue (£10) - Costs (£5) = Profit (£5).

3. Reinforce using a loss example:
   If you spent £7 but only made £5, how much money have you lost? Demonstrate on the board again.

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3. Group Activity: Shop Simulation (15 minutes)

Objective: Allow students to apply profit/loss calculations in an interactive, practical way.

1. Set up the classroom “shop”:

   • Place classroom items (e.g., a pack of pencils, an eraser) with varying costs and suggested sales prices.
   • Assign each group (4-5 students in each, six groups total) to be “shopkeepers.”

2. Give each group a scenario card: A card with data on:

   • Starting costs (e.g., £20 spent on products)
   • Price per item and estimated number of sales
   • Any unexpected costs (e.g., “You break three pencils and can’t sell them”).

3. Student Task: Groups calculate their revenue, costs, and profit or loss based on their scenario. They record calculations on their mini whiteboards for the teacher to check.

4. After 8 minutes, each group presents their profit/loss to the class.

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4. Whole-Class Balancing Activity: Accounting Cards (10 minutes)

Objective: Illustrate how small businesses balance accounting equations for success.

1. Show the Balance Equation:
   Assets - Liabilities = Capital (Profit or Loss)
2. Distribute laminated “Accounting Balance Cards” randomly to students (representing costs, revenues, assets, or liabilities).
3. The task: Arrange themselves physically at the front of the room to balance the accounting equation.
   • Example: If total “assets” = £100, but “liabilities” = £60, the remaining “capital” is £40 (profit).
4. Debrief: Ask students how increasing costs or liabilities would impact the equation.

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5. Reflection and Plenary Discussion (5 minutes)

Objective: Consolidate understanding and link to future learning.

1. Ask: “Why do you think it’s important for businesses to calculate profit and loss accurately?”
2. Solicit responses: Link back to everyday examples (shops, restaurants, etc.).
3. Pose a forward-looking question for next lesson: “If you had £50 to start a business, what would you sell and why?”

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Homework

1. Distribute a worksheet with 3 profit/loss scenarios (e.g., “Jack sold ice cream…calculate his revenue, costs, and profit/loss”).
2. Ask students to reflect on and jot down a short answer: “What are two ways businesses can reduce their costs or increase their revenue?”

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Assessment Opportunity

• Informally assess students’ understanding during the calculations in group activities.
• Use mini whiteboard answers in the plenary for quick, visible evidence of learning.

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Teacher Notes

• Ensure differentiation by challenging high-ability students with more complex scenarios (e.g., dealing with VAT or percentage discounts).
• Support students who struggle with simplified equations and guided, step-by-step examples.