Meaning

Profit and Loss Appropriation Account is a nominal account 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.

Particulars ` Particulars `
To Interest on Capitals

To Salary/commission

To Reserves

ToPartners’ Capitals(Profit)

Xxx

Xxx

xxx

xxx

——————

By Profit and Loss Account (Net Profit)

By Interest on Drawings

Xxx

Xxx

 

 

——————

 

Journal Entries relating to Profit and Loss Appropriation Account:

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.Separate journal entries must be made for individual partners.

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

Capital Accounts of the Partners

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