Question

Why is Profit and Loss Appropriation Account prepared?

Answer 1

While preparing the final accounts of a partnership firm it is preferable to ascertain the net profit of the firm before any personal adjustments of the partners are adjusted.This will show separate results for the business activities and facilitate comparisons year after year.

All adjustments like partner's salary,commission,bonus,interest on capital,loans,drawings and sharing of profits are passes through a separate account called Profit & Loss Appropriation Account.

Thus, profit and loss Appropriation account is prepared to show how net profit is distributed among the partners.