Appropriation Account

Appropriation accounts

Appropriation accounts

What is the profit and loss appropriation account?

• The profit and loss appropriation account is one of the financial statements prepared by businesses that operate as a partnership

  • The partnership prepares the income statement first

  • And then they prepare the profit and loss appropriation account

• It shows how the profit or loss from the income statement is split between the partners

  • The distribution of the profit for the year is based on the terms of the partnership agreement

• The appropriation account is part of the double entry system

  • The profit or loss for the year is transferred from the income statement

How do I complete the profit and loss appropriation account?

• STEP 1
  Put the profit for the year in the right column

  • You get this value from the income statement

• STEP 2
  Add the total interest on drawings

  • List the interest for each partner

  • Put the total in the right column

  • Add it on to the profit

• STEP 3
  Total the interest on the partners' capital

  • List the interest for each partner

  • Put the total underneath

• STEP 4
  Total the partner's salaries

  • List the salary for each partner underneath the previous total

    • If there is more than one salary you can create a new column for totalling them up

• STEP 5
  Subtract the total interest on capital and partners' salaries

  • Subtract from the previous value in this column

  • This gives the residual profit

• STEP 6
  Share the residual profit in the ratio described in the partnership agreement

  • List the profit for each partner

  • Put the total in the right column