📘Lesson Plan: Basic Accounting Framework
Grade Level / Audience
High school seniors, college freshmen, or entry-level professionals
Duration
60–90 minutes
Lesson Objectives
By the end of this lesson, students will be able to:
1. Define accounting and its purpose.
2. Identify the components of the basic accounting framework.
3. Understand the accounting equation.
4. Recognize the types of financial statements.
5. Apply basic accounting principles to simple examples.
Materials Needed
Whiteboard or projector
Handouts with examples
Accounting equation worksheet
Sample financial statements
Calculator (optional)
Lesson Outline
1. Introduction (10 minutes)
Warm-up Question: “Why do businesses need accounting?”
Brief discussion on the role of accounting in decision-making.
The Role of Accounting in Decision-Making
Accounting plays a critical role in helping individuals, businesses, and
organizations make informed decisions. It provides a structured way
to record, analyze, and interpret financial information, which is
essential for planning and evaluating performance.
Key Roles of Accounting in Decision-Making:
1. Provides Financial Clarity
o Accounting organizes financial data into understandable formats
like balance sheets and income statements.
o This clarity helps stakeholders see how much money is coming
in, going out, and what resources are available.
2. Supports Strategic Planning
o Business owners and managers use accounting data to set goals,
allocate resources, and forecast future performance.
o For example, knowing profit margins helps decide whether to
expand or cut costs.
3. Facilitates Budgeting
o Accurate records allow for realistic budgeting.
o It helps prevent overspending and ensures funds are used
efficiently.
4. Enables Performance Evaluation
o Financial statements show how well a business is doing.
o Comparing actual results to budgets or past performance helps
identify strengths and weaknesses.
5. Ensures Compliance
o Accounting helps businesses comply with tax laws and financial
regulations.
o Proper records reduce the risk of penalties and audits.
6. Builds Trust with Stakeholders
o Investors, lenders, and partners rely on financial reports to
assess risk and make investment decisions.
o Transparent accounting builds credibility.
Define accounting: “The process of recording, summarizing, and
reporting financial transactions.”
2. Core Concepts (20 minutes)
A. The Accounting Equation
Formula:
Assets = Liabilities + Owner’s Equity
What Are Assets?
Assets are resources owned by a business or individual that
have economic value and can be used to generate future benefits. In
accounting, assets are recorded on the balance sheet and are a key
part of the accounting equation:
Types of Assets
1. Current Assets
These are assets that are expected to be used or converted into cash
within one year.
Examples:
Cash
Accounts receivable
Inventory
Prepaid expenses
2. Non-Current (Fixed) Assets
These are long-term assets used in operations and not easily converted
into cash.
Examples:
Buildings
Equipment
Vehicles
Land
3. Intangible Assets
These are non-physical assets that still hold value.
Examples:
Patents
Trademarks
Goodwill
Copyrights
Why Are Assets Important?
They help measure the financial health of a business.
They are used to generate revenue and support operations.
They are essential for investment decisions and credit
evaluations.
What Are Liabilities?
Liabilities are financial obligations or debts that a business or individual
owes to others. They represent claims against the company’s assets and
are settled over time through the transfer of money, goods, or services.
Types of Liabilities
1. Current Liabilities
These are obligations that are due within one year.
Examples:
Accounts payable (money owed to suppliers)
Short-term loans
Salaries payable
Taxes payable
2. Non-Current (Long-Term) Liabilities
These are debts or obligations that are due after one year.
Examples:
Long-term loans
Bonds payable
Lease obligations
Pension liabilities
Why Are Liabilities Important?
They help assess a company’s financial health and risk level.
They show how much a business relies on borrowed resources.
Managing liabilities is crucial for maintaining cash
flow and creditworthiness.
What Is Owner’s Equity?
Owner’s Equity represents the owner's share in the business. It is
the residual interest in the assets of the business after deducting
liabilities. In simple terms, it’s what the owner actually owns in the
company.
Components of Owner’s Equity
1. Capital Contributions
Money or assets the owner invests in the business.
2. Retained Earnings
Profits that are kept in the business instead of being withdrawn.
3. Drawings (or Withdrawals)
Money taken out by the owner for personal use (this reduces
equity).
Why Is Owner’s Equity Important?
It shows the net worth of the business from the owner's perspective.
It helps assess the financial stability of the company.
It’s used by investors and lenders to evaluate the risk and value of
the business.
B. Double-Entry System
What Is the Double-Entry System?
The Double-Entry System is a fundamental concept in accounting
where every financial transaction affects at least two accounts. It ensures
that the accounting equation remains balanced:
Assets = Liabilities + Owner’s Equity
This system is based on the idea that every debit has a corresponding credit.
Key Features of the Double-Entry System
1. Two-Sided Recording
Each transaction is recorded in two places: one as a debit and
one as a credit.
2. Balances the Books
The total amount of debits must always equal the total amount
of credits.
3. Improves Accuracy
Helps detect errors and ensures financial statements are reliable.
4. Supports Financial Reporting
Makes it easier to prepare accurate balance sheets, income
statements, and other reports.
Example
Let’s say a business buys equipment worth ₱50,000 in cash:
Debit: Equipment account ₱50,000 (increase in asset)
Credit: Cash account ₱50,000 (decrease in asset)
Even though both accounts are assets, one increases and the other
decreases, keeping the equation balanced.
Why Is It Important?
Ensures transparency and accountability
Helps maintain accurate records
Forms the basis for modern accounting systems
Debits and Credits Must Balance
In the double-entry accounting system, every financial transaction is
recorded in at least two accounts: one as a debit and one as a credit.
The total amount debited must always equal the total amount
credited.
This rule ensures that the accounting equation stays balanced:
Assets = Liabilities + Owner’s Equity
What Are Debits and Credits?
Debit (Dr): An entry that increases assets or expenses, or decreases
liabilities or equity.
Credit (Cr): An entry that increases liabilities or equity, or decreases
assets or expenses.
Example:
Let’s say a business buys equipment worth ₱50,000 in cash:
Debit: Equipment account ₱50,000 (increase in asset)
Credit: Cash account ₱50,000 (decrease in asset)
Debits = Credits → ₱50,000 = ₱50,000
Why Is Balancing Important?
It helps maintain accurate financial records
Prevents errors in bookkeeping
Ensures that the financial statements reflect the true financial
position
4. Activity: Apply the Framework (20 minutes)
Provide a list of transactions.
Students classify them into assets, liabilities, or equity.
Use the accounting equation to verify balance.
5. Wrap-Up & Review (10 minutes)
Recap key points.
Quick quiz or Q&A session.
Assign homework: Create a mini balance sheet for a fictional business.
Assessment
Participation in discussion and activity
Accuracy in applying the accounting equation
Quiz performance
Extension Ideas
Invite a guest speaker (accountant or finance professional)
Use accounting software for a demo
Explore ethical issues in accounting
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