Profit and Loss Appropriation Account

Profit and Loss Appropriation Account is a nominal account. It's prepared for the purpose of distributing profits/losses among the partners after making all the adjustments relating to Interest on Capitals, Interest on Drawings, Salary/commission to partners and transfer to Reserve.

It is an extension of Profit and Loss Account.

It contains the items relating only to the partners’ claim.

   Dr.                                       Profit and Loss Appropriation Account                                     Cr.

Journal Entries:

1. If there is net profit

Profit and Loss A/c                                      Dr.

To Profit and Loss Appropriation A/c

(Reverse entry in case of loss)

2. Interest on Capital

(a) Interest on Capital A/c                                     Dr.

To Partner’s Capital/Current A/c

(b)Profit and Loss Appropriation A/c                 Dr.

To Interest on Capital A/c

3. Interest on Drawings

(a) Partners Capital/Current A/c                        Dr.

To Interest on Drawings A/c

(b) Interest on Drawings A/c                               Dr.

To Profit and Loss Appropriation A/c

4. Partner’s Salary/commission

(a) Salary/commission to Partner A/c              Dr.

To Partner’s Capital/Current A/c

(b) Profit and Loss Appropriation A/c               Dr.

To Salary/commission to Partner A/c

5. Transfer to Reserves

Profit and Loss Appropriation account               Dr.

To Reserves

6. Share of Profit or Loss after adjustments

In case of Profit:

Profit and Loss Appropriation A/c*          Dr.

To Partner’s Capital/Current A/c

(Reverse entry in case of loss)

Note: 1. In journal entries Names must be mentioned for individual partners.

2. Narrations have been omitted to simplify the learning process here, but must be written while doing practical work and examination.

You can watch Video here: Profit and Loss Appropriation Account

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Types of Partners’ Capital Accounts