An account that shows how a company's net profit is distributed among partners, shareholders, or reserves.
An Appropriation Account is prepared after the Profit & Loss Account to show how net profits are allocated. For partnerships, it shows salary to partners, interest on capital, and profit-sharing ratios. For companies, it shows dividends, transfers to reserves (general reserve, sinking fund), and retained earnings carried forward. It bridges the gap between earning profit and distributing it, ensuring transparency in profit allocation decisions.
A partnership firm earns ₹10,00,000 net profit. Appropriation: Partner A salary ₹2,00,000, Partner B salary ₹2,00,000, Interest on capital ₹1,00,000, Transfer to reserve ₹1,00,000. Remaining ₹4,00,000 split equally: ₹2,00,000 each.
Ensures accurate financial reporting and record-keeping
Helps maintain regulatory and tax compliance
Enables better-informed business decisions
Improves operational efficiency and cash flow management
The P&L Account calculates HOW MUCH profit was earned (revenue minus expenses). The Appropriation Account shows HOW that profit is DISTRIBUTED (dividends, reserves, partner shares). P&L comes first, then Appropriation.
It's mandatory for partnerships (to show profit distribution per partnership deed) and companies (to show dividend declarations and reserve transfers). Sole proprietors typically don't need one as all profit belongs to the owner.
A financial statement that summarizes a company's revenues, costs, and expenses over a specific period to show net profit or loss.
The cumulative net profits of a company that have been kept in the business rather than distributed as dividends to shareholders.
A portion of a company's earnings distributed to shareholders as a return on their investment, typically paid quarterly or annually.
A business unit, department, or segment that generates its own revenue and incurs its own costs, with its profitability tracked independently.
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