Profit & Loss Appropriation Account

The Profit & Loss Appropriation Account is prepared after the Profit & Loss Account to show the final distribution of net profit among partners or shareholders. It is used in partnership firms and companies to record how the remaining profit is appropriated after all expenses and charges have been accounted for.

In partnership, this account only shows the distribution of net profit between partners in the agreed profit-sharing ratio. In companies, it includes transfers to reserves, payment of dividends, and retained earnings. It ensures proper tracking of how profit is finally allocated.

Key Points:

• Used in partnership firms and companies, not in sole proprietorships.
• Shows distribution of profit, not business expenses or charges.
• In partnerships, it reflects final sharing of profit among partners.
• In companies, it records dividends, reserves, and retained profit.
• Maintains transparency in how profits are used or carried forward.

Examples:

• From ₹1,20,000 net profit, partners A and B receive ₹60,000 each in a 1:1 ratio.
• Company appropriates ₹50,000 to reserve and pays ₹1,50,000 as dividends from ₹2,50,000 profit.