What is meant by profit and loss appropriation ? Why is it created ? Why can't the items of profit and loss appropriation account just be included in the profit and loss account instead of opening this account
What is meant by profit and loss appropriation ? Why is it created ? Why can't the items of profit and loss appropriation account just be included in the profit and loss account instead of opening this account
Profit and Loss Appropriation Account is a nominal account similar to the Profit and Loss Account. This implies that Profit and Loss Appropriation Account is prepared by following the rule of nominal account i.e. debit all expenses and losses and credit all incomes and gains. This account is prepared primarily to show the appropriation or distribution of profits among the partners. However, Profit and Loss Account is prepared to ascertain the amount of net profit after considering all the expenses incurred and incomes of a firm.
The items of Profit and Loss Appropriation Account are not shown in the Profit and Loss Account because Appropriation Account basically prepared to show the appropriation of available profits (after meeting all the expenses). In simple words, it is prepared to show how the profit available for appropriation has been appropriated among the partners in different forms such as interest on partners’ capitals, partners’ remunerations in the form of salary, commissions, etc. Thus, these items are not shown in the Profit and Loss Account.
Profit and Loss Appropriation Account is a nominal account similar to the Profit and Loss Account. This implies that Profit and Loss Appropriation Account is prepared by following the rule of nominal account i.e. debit all expenses and losses and credit all incomes and gains. This account is prepared primarily to show the appropriation or distribution of profits among the partners. However, Profit and Loss Account is prepared to ascertain the amount of net profit after considering all the expenses incurred and incomes of a firm.
The items of Profit and Loss Appropriation Account are not shown in the Profit and Loss Account because Appropriation Account basically prepared to show the appropriation of available profits (after meeting all the expenses). In simple words, it is prepared to show how the profit available for appropriation has been appropriated among the partners in different forms such as interest on partners’ capitals, partners’ remunerations in the form of salary, commissions, etc. Thus, these items are not shown in the Profit and Loss Account.
