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One of the main components of business finance is learning how to record profits and losses and using this information to help predict future activity. To do this, you need to teach your students how to set up a profit and loss statement.
Students need to understand the difference between fixed and variable expenses. In more complex business structures, there may be a fixed/variable combination, but this isn’t something you need to discuss in an introductory lesson.
A fixed expense occurs on a regular basis and costs the same amount at each disbursement. For many businesses, rent and loan payments fall under this category. A variable expense is a disbursement at set intervals, but the amount of the disbursement changes. Adjustable variables are things such as the electric or gas bill.
Students need to know how to average out, or predict, adjustable disbursements to create a profit and loss statement for forecasting. You may need to spend time explaining how students can research these expenses in order to make accurate predictions. This may include using records from last year or using information from a utility company to accurately track the cycle of expenses.
Once students understand the expenses, they need to determine income for each week or month. This requires tracking sales to determine the gross income. The more items, services, or products you have, the more complicated this can be. You may need to spend time teaching your students the difference between net and gross income.
As your students get a better understanding of the components of profit and loss statements, they will need to learn how to enter the information into a spreadsheet. They need to know how to do functions in the program, like adding the sum of two cells together.
With this fundamental element of business finance, your students will be on the path to learning how to manage a business.