Polytechnic University of the Philippines

COLLEGE OF EDUCATION
Mabini Campus, Sta. Mesa, Manila

Lesson Plan in Bookkeeping (CHAPTER 4: Measuring Business Income)

I. TARGETS
At the end of the lesson, the students will be able to:
1. Identify the difference between the cash basis of accounting and accrual basis of accounting.
2. Determine the importance of the accounting period in any business entity.
3. Explain the revenue principle and the expense principle of accounting as well the framework
it has for the preparation and presentation of financial statements.
4. Generalize the significance of the time-period concept in a business.

II. CONCEPT
Measuring Business Income

SUBCONCEPT:
 Cash vs. Accrual Basis of Accounting
 Accounting Period
 Revenue Principle
 Expense Principle
 Time-Period Concept

MATERIALS:
 Projector
 Laptop
 Cartolina and score cards
 Chalk / Whiteboard Marker

REFERENCE:
Hernane, Milagros. Principle in Financial Accounting, pages 101-103

III. STRATEGIES
A. PREPARATION
1. Routine Activities
Greeting the class, prayer, passing of assignments (if they have) and ask them to keep all
their notes away.

2. Review
Show them the illustration in the cartolina paper which indicates the table of debit and
credit rules and let the whole class answer for the corresponding exercise. Ask one of the students
for each right answer to write the correct answer in the board.
DEBIT AND CREDIT RULES
 Increase Decrease Norm
Balance
ASSETS **Debit Credit Debit
LIABILITIES Credit Debit Credit
CAPITAL Credit Debit Credit
Owners, Debit Credit Debit
Drawing
REVENUE Credit Debit Credit
EXPENSE Debit Credit Debit
**the shaded part shown in this table will be eliminated in the actual material.
3. Motivation
A student has the tendency to divert his/her attention in some other stuff during the
discussion especially in a math class. Throughout the discussion this motivation would play part.
The class will be divided into two groups. The name of the game is “Pick Your Luck.” Each group
should have different representative to answer the questions throughout the discussion. The first
player who raises his hand will be given the chance to answer the question. If the player got the
correct answer then, he will choose a number of his want in the score board then he will reveal
what’s inside it and the points will be added to the group’s score. Take note that the score cards in
the score board has special powers that can get the rival’s point, import one of the member of the
other group and neutralizes the opponent so that it cannot get the chance to answer the next
question or they can share scores.

B. PRESENTATION
Cash vs. Accrual Basis of Accounting
Cash Basis of Accounting
 Recognizes revenue when cash is received.
 Recognizes expense when cash is paid.
Under the cash basis, service rendered in current year (2013) for which cash is collected in
the next year (2014) would be treated as 2014 revenue.
Under the cash basis, expense incurred in current year (2013) for which cash is disbursed in the
next year (2014) is 2014 expense.
Because of these improper assignments of revenues and expenses, the cash basis of
accounting is generally considered unacceptable. There is no need for adjusting entries under the
cash basis of accounting.
Accrual Basis of Accounting
 Recognizes revenue when sales are made or services are performed, regardless of when cash
is received.
 Recognizes expense as incurred, whether or not cash is paid out.
Under the accrual basis of accounting, adjusting entries are prepared to bring the accounts up-
to-date for an economic activity that has taken place but has not been recorded.

Accounting Period
Accounting period is the period of time:
 One month
 One quarter
 One year
Into which an entity’s life is arbitrarily divided for financial statement purposes. Every
business prepares Annual Financial Statements.
Fiscal Year
 Twelve month accounting period used by an entity.
 Used by most company’s coincides with the calendar year which ended on (some other)
December 31.

Revenue Principle
Revenue Principle is the basis for recording revenues
 Tells accountants when to record revenue and the amount of revenue to record.
 Says to record revenue when it has been earned-but not before.
Framework for the Preparation and Presentation of Financial Statements
 States that Income or Revenue is recognized in the income statement when an increase in future
economic benefit related to an increase in an asset or a decrease of a liability has risen that can
be measured reliably.

The Matching Principle

Matching Principle guides accounting for expense.
 Identifies all expenses incurred during the period, measure the expenses, and match them
against the revenue earned during the same time period.
The Framework for the Preparation and Presentation of Financial Statements
 Expenses are recognized in the income statement when a decrease in future economic benefit
related to a decrease in an asset or an increase of a liability has arisen that can be measured
reliably.

Time-Period Concept
 Ensures that information is reported at regular intervals.
Fire insurance policies, for example, cover a period of 12 months. If a company prepares
monthly income statements, a portion of the cost of such policy should be allocated to the cost of
insurance expense each month that is policy is in force. Cost of the policy=total cost/12 months.
Not all transaction can be precisely divided by the accounting periods. The purchase of a
building, furniture & fixtures, machine & equipment provides benefits to the business over all the
years in which such an asset is used.
For some expenditures, such as advertising/employee training programs it is not possible to
estimate objectively the number of accounting period. Accounting principle require that the
expenditure be charge immediately to expense.

C. APPLICATION
Ask questions to the students about the topic that has been discussed.
1. How many months does the fiscal year has?
2. State the basic principle of revenue in your own words.
3. State the basic principle of expense in your own words.
4. For you, which is better? Cash or Accrual basis of accounting?
D. EVALUATION
See attached paper
E. AGREEMENT
Before dismissing the class, ask them to read ahead the next topic.
Reference: Hernane, Milagros. Principle in Financial Accounting, pages 103-106
 Polytechnic University of the Philippines
COLLEGE OF EDUCATION
Mabini Campus, Sta. Mesa, Manila

Name: _________________________________ Date: _______________

Course, Year & Section: ___________________ Miss Christine Garcia

GENERAL INSTRUCTIONS: Erasures and any form of alterations are invalid and will be
considered wrong.
I. IDENTIFICATION: Write on the spaces provided the term that is being described

______________1. Tells accountants when to record revenue and the amount of revenue to record.
______________2. Twelve month accounting period used by an entity.
______________3. Ensures that information is reported at regular intervals.
______________4. Recognizes revenue when cash is received.
______________5. Recognizes in the income statement when an increase in future economic
benefit related to an increase in an asset or a decrease of a liability has risen that
can be measured reliably.
______________6. Recognizes in the income statement when a decrease in future economic
benefit related to a decrease in an asset or an increase of a liability has arisen that
can be measured reliably.
______________7. Identifies all expenses incurred during the period, measure the expenses, and
match them against the revenue earned during the same time period.
______________8. Into which an entity’s life is arbitrarily divided for financial statement
purposes. Every business prepares Annual Financial Statements.
______________9. Recognizes expense as incurred, whether or not cash is paid out.
______________10. Recognizes expense when cash is paid.