Profit and loss appropriation account

Basics of Accounting for Partnership

1. Profit and Loss Appropriation Account Prepared by PRASANTH.S.R

2. Profit and Loss Appropriation Account 'Profit and Loss Appropriation Account' is merely an extension of the profit and loss account and is prepared to show how net profit is to be distributed among the partners . The account should begin with the profit or loss forwarded from the profit and loss account. Further this account is credited with net profit and interest on drawings, and debited with interest on capitals, salary or commission to partners. After these adjustments have been made, the Profit and Loss Appropriation Account will show the amount of profit or loss. After transferring a particular sum to the reserve fund , balance amount will be distributed among the partners in the agreed profit sharing ratio . And this amount is transferred to their capital or current accounts.

3. Journal Entries For Preparing The Profit And Loss Appropriation Account For the transfer of Net profit P&L account Dr P&L Appropriation a/c (Net profit transferred to p&l appropriation account) P&L appropriation a/c Dr P&L account ( Net loss transferred to p&l appropriation account)

4. Journal Entries For Preparing The Profit And Loss Appropriation Account 2 . For Interest on Capital Interest on Capital a/c Dr. Partners ' Capital/Current a/c ( For Crediting Interest on Capital to Capital/Current Account ) Profit and Loss Appropriation a/c Dr. Interest on Capital a/c ( For transferring Interest on Capital to Profit and Loss Appropriation Account )

5. Journal Entries For Preparing The Profit And Loss Appropriation Account 3 . For Interest on Drawings Partners Capital/Current a/c Dr. Interest on Drawings a/c ( Interest on Drawings is a gain to the firm and is charged to Partner's Capital/Current Account) Interest on Drawings a/c Dr. Profit and Loss Appropriation a/c ( For transferring Interest on Drawings to Profit and Loss Appropriation Account, the following entry is to be recorded)

6. Journal Entries For Preparing The Profit And Loss Appropriation Account 4 . Partner's Salary Salary to Partner a/c Dr. Partner Capital/Current a/c ( Salary allowed to a partner is a gain of the individual partner and charge against the profits of the firm as per partnership agreement. For this following entry is recorded ) Profit and Loss Appropriation a/c Dr. Salary to partner a/c ( For charging salary allowed to a partner )

7. Journal Entries For Preparing The Profit And Loss Appropriation Account 5 . Partner's Commission Commission to partner a/c Dr. Partner's capital/current a/c ( Commission due to the partner ) Profit and Loss Appropriation a/c Dr. Commission to partners a/c ( Commission paid to a partner is charged to Profit and Loss Appropriation account )

8. Journal Entries For Preparing The Profit And Loss Appropriation Account 6 . For Transfer to Reserve: Profit and Loss Appropriation a/c Dr. Reserve (Amount transferred to Reserve) 7 . Transfer of share of Profit or Loss to P&L Appropriation If Profit: Profit and Loss Appropriation a/c Dr. Partner's Capital/Current a/c If Loss: Partner's Capital/Current a/c Dr. Profit and Loss Appropriation a/c

9. Profit & Loss Appropriation Account Dr Cr Particulars Amount Particulars Amount To Profit an loss (In case of loss) To Interest on Capital A xxx B xxx To Salaries To Commission To Reserve To Profit Transferred to (in the case of profit) A’s capital / current A/c xxx B’s Capital / Current A/c xxx Xxx xxx Xxx Xxx Xxx xxxx By Profit & Loss Account (In case of profit) By Interest on Drawings A xxx B xxx By Loss transferred to ( in the case of loss) A’s capital / current A/c xxx B’s Capital / Current A/c xxx Xxx Xxx xxx xxxx xxxx

10. Difference between Profit and loss Account and Profit and loss Appropriation Account .   Sl. No. Profit & Loss Account Profit & Loss Appropriation Account 1 It is prepared after trading account It is prepared after profit & loss account. 2 It is prepared to ascertain net profit or net loss. It is prepared to distribute the net profit of the year among the partners. 3 This account is not prepared on the basis of partnership agreement . This account is prepared on the basis of partnership agreement. 4 Expenses debited to this account are charge against profits. (Charge against profit indicates expenses to be deducted from profits) Items debited to this account are appropriation of profits. (Appropriation of profits indicates distribution of net profit to various heads)