Profit and loss appropriation account


Transaction of the partnership firm are recorded according to the Double Entry System of accounting. For recording the transactions the procedure followed is similar to that of the Sole Proprietorship. Starting from Journal, Cash Book and other Subsidiary books viz. Purchases book, Sales book etc. Ledger and trial balance are prepared and at the end of the accounting period Profit and Loss account and Balance sheet are prepared to know about the Profitability and the financial position of the firm. Till here there is no difference between the accounts of a sole proprietor and a partnership firm. Now the question arise that how to divide the profits or losses among the partners and how to make other appropriations to them like salary, commission, Interest on capital etc.

So after making the Trading and Profit and Loss account of a Partnership firm the next step is to divide the profits or losses among the partners and to make other appropriations like interest on capital, salary, commission etc. For this purpose an another account is prepared i.e. profit and Loss appropriation account.

This account is prepared to show the division of profit and other appropriations among partners like salary, commission, interest on capital, interest on drawings etc. A specimen of this account is as under.

Profit and Loss Appropriation Account

Particulars Rs.  Particulars Rs.
To Profit and Loss A/c(loss transferred from Profit & Loss A/c)

To Salaries of Partners

To Commission to Partners

To Interest on Partners’ Capitals

To Reserve A/c

To Profit transferred to Partners capital or current account

By Profit and Loss account(Profit transferred from P & L account)

By Interest on Drawings

By Loss transeferred to Partners’ capital or current accounts

1. For Interest on Capital :
 a) For allowing Interest on Capital :
Interest on Capital A/C ……………………. Dr.
 To Partner’s Capital Account
b) To close Interest on Capital A/C :
 Profit and Loss Appropriation A/C…………Dr.
To Interest On Capital A/c
2. For Salary or Commission etc payable to partners :
 a)To allow Salary /Commission :
Partner’s Salary /Commission  A/C…………Dr.
To Partner’s Capital A/C
b)To Close Salary / Commission A/C :
Profit and Loss Appropriation A/C…………Dr.
To Partner’s Salary / Commission  A/c
3. For charging Interest on Drawings :
 a) To charge Interest on Drawings :
Partner’s Capital A/C………………………….Dr.
To Interest On Drawings A/c
 b) To close Interest on Drawing A/C :
Interest On Drawings A/c…………………..Dr.
To Profit and Loss Appropriation A/C
4. To transfer a part of Profits to General Reserve :
Profit and Loss Appropriation Account……………….. Dr.
To General Reserve
5. To transfer Profits /Losses to partner’s Capital A/Cs :
 a) If  Profit and Loss Appropriation A/C shows a credit balance :
Profit and Loss Appropriation A/C…………………Dr.
To Partner’s Capital A/C
 b) If Profit and Loss Appropriation A/C shows a debit balance :
Partner’s Capital A/C ………………………………….Dr.
To Profit and Loss Appropriation A/C
A, B and C are partners in a partnership firm with capital A- Rs.5,00,000; B- Rs.7,00,000 and C- Rs4,00,000. During the year 2012, the firm earned a net profit of Rs. 2,00,000. The partners are to entitled to an interest on capital @ 6% p.a. They also made some drawings on which interest to be charged is A-Rs.400; B-Rs 500 and C- Rs250. A is entitled to Rs.2000 p.m. as salary. B is to get 5% of the net profit after all adjustments as commission. Also 10% of the profits remaining before providing commission to B is to be transferred to General Reserve. Profit are shared among A, B and C in the ratio 1:1:2 respectively. Prepare Profit and Loss Appropriation account to show the above adjustments.
 Profit and Loss Appropriation Account
Particulars Amount(Rs)  Particulars Amount(Rs)
To Interest on Capital: By Net Profit 2,00,000
              A-Rs. 30,000 By Interest On Drawings
              B-Rs. 42,000      A- 400
              C-Rs. 24,000 96,000      B- 500
To Salary (A) 24,000      C- 250 1,150
To General Reserve 8,115
To Commission (B) 7,303
To Profit transferred to:
          C-32,866 65,732
2,01,150 2,01,150

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