DISTRIBUTION OF PROFIT AMON ~1., ·.

~T,~ERS:
PROFIT AND LOSS APPROPRIATION ACCOUNT
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A partnership firm, like a p~opri~~~r ship firm, prepares Tradin~ Account, Pr9fit an~ Loss
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Account
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and .Jr)
Balance Sheet. In\ l ~ddition, a partnership firm prepares Proq.t and 1 Loss
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Appropriation Accotint whid11,tiet profit or n~t loss as per ilie Profit and Loss Account is
transfer~ed to appropri~t, it a} .pe/ ~ e 1agreement among partners. This account; is an extension
i . . . ·1'.r.,., 1· I /

of the Profit and'l..,oss Account, and is ~:r;~dited with the amount of Net(Profit or .d ebited with the
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amount of Net Loss (trapsferre~,~~, profit andlLoss Account). It is credited with the amount
of interest on drawings bf the partriers1(which is Jiicbme for the firm) and debited with interest
on the capitals of the partners, pa; tri~ s' ~1laries and comrnissi9ns, etc. . ·
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If the partners decide, an_amount:·~s :~~_:ansferred to Reserve and the balance profit (Divisible
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Profit) is distributed between/amo~&·,, e partners in their profit-sharing ratio.
It should be noted that profit is a~! r~ riated up to the amount available for distribution, i.e.,
Divisible Profit. Thus, if ~er tr~j of net loss and credit of interest charged on drawings
to Profit and Loss Appiopriation.f ~unt, the balance is loss, appropriation is not made. The
loss is distributed am9~ng;the,,paftner$ in their profit-sharing ratio. But if it results in profit,
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appropriation is made ·up tc;> the ampµnt of profit.
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 - .-.'-'- 0 untin t
9 or Partnership F'
t profit is the Profit earned b .irms-Fundarnentals 2 11
NB ct f Y an ent · · •
. the r,e.t 8 . o Operating and erpr,se from its operatin

:re ch
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~ms: Profit. It is det;:;:::;ting reve_nues and
'IStributab/e Proftt . y preparmg Profit and loss Ace
:,h::~n:::-°:/;•:ng
n
activities.It'
expenses that
vi re l is the profit th . ounr.
afte( d muneration (Salary Commis . at IS available for distribution am
charging inter~ st , - - . s1ont_ etc.) to Partners, interest on ~ng Partners
Acci5'iJnr.- - -............;..__,,,~ n drawmgs. It is determined by prep . c8f:.!.!a!s, transfer
. .- - - - - - - armg Profit and -l.
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ss Appr · ·
. opr,at,on Account is an extension of the Profit and loss
er Profit and Loss Account is transferred to Profit d l Acc~u~t. Net Profit
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. , a~ oss Appropr,at,on Account.
Follox· g
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re considered as appropriation of profit and therefore ar~ tran f d (

the debi Profit and Loss Appropriation Account: s erre posted) to
(i) /Commission to Partners; ·
(ii) . Iitterest on Capitals of Partners; and
(iii) transfer to Reserves.
Interest on Drawings is trai.sferred.(posted) to the credit of Profit and Loss Appropriation Account.
Specimen of the Profit and Loss Appropriation Account
PROFIT AND LOSS APPROPRIATION ACCOUNT
for the year ended ... Cr.

, .... _~ .,

To Profit and Loss A/c .. / . · By Profit and Loss Ne

(Net l oss+ transferred from · · ' (Net Profit+ transferred from
1• ·, ·'' ,) • '.Profit and Loss As~ount)
Profit and Loss Account)
By ' Interest on Drawings:
To Interest on Capitals:
Abhay
Abhay .
Bhaskar
Bhaskar, By Loss+ transferred to:
To Partners' Salaries /'" . * Abhay's Capital Ne
To Partners' Commissions / **(or Abhay's current Ne)
To Reserve r · *Bhaskar's Capital Ne
To Profit+_transferred to: . **(or Bhaskar's Current Ne)
*Abnay's Capital Ale
**(0r Abhats Current Ne)
*Bhaskar's Capital Ne
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**(or Bhaskar's Current A/c)
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+Either of the tw9...will exi st. M thod t
" . I Accounts e s ;nteres
*Under Fluctuating Capita h d , and rent) such 8 /profit,
°"*Under Fixed Capital Accou r nts Met
O
rtner --
(except interes t on loan · t ·on
are appropna i
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unt payable to a pa ommission, etc.,
Always remember that amo be a charge), salary, _c __
on caoital fif not specified to
 JOURNAL ti-.,'""""'··--· -
\: ' - , ,lr•, ' 1 Profit and Loss Alt.
' 1. Transfer ,of profit fr~m '1frPl!t and,
to Profit and Loss Appropriation A/c
·\ loss Account ·to Profit -~ ;nd.l~l>S~ (Profit transferred)
Appropriation Account _ ·, -'1
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Profit and Loss Appropriation Ale
2. 'Transfer of loss from Prqfit 1and l \I

To Pr9fit and ~ - ~ - -,
• ·ss Account to Profit and Loss
Appropriation Ac~ount

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3. For Partners' Salaries/Commission , Partt;1ers' Salaries/Corrimission Ale

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(SaIanes
To Partners' CapitallCurrent** A/cs (lndividu 11
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commissior:1 alldwed to partners)
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a y)

To Close Salaries/Corr,mission-Account ----

Profit and Loss
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Appropriation
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Ale
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To Partners'~alaries/C~mmissions A_!;y.,
(Sa · s/com~ission aUowed to par stransferred to
Profit and Lv.:,;,.,..,..tµU.lµl-f<itfO.---n
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Alternatively, a combined entry may be passed as: ---.._

!Profit and Loss Appropriation Ale '
,,,. .,..[ , To Partners' Capital/Current** A/cs {Individually)
·· . (Salaries/commission allowed·to partnEljS transferred to
Profit and Loss Appropriation Account)

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'4. For Allowing Interest on Capitals ·., (i) Interest on Cap\tal ,Ve
.... · . ~C\ ,~9~t.n_~,r~'Capital/Current** A/cs {Individually)
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lnt,e~,7,st ,capi~~l~ all.owed to partners@ ....% p.a.)
(ii)i·:' Toi,(Jose
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Interest on Capit9[.AccountI ,/ ~. i' t ( ' J ' I '

ll Profita11llqss Appropriation Ale

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, · i,-, ·T? ,:lnterestprrCapital Ne ·

,l (l_
nter~~t _on ?lpital allowed transferred to
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· ·:, . 11Rr0fit a11~J os~ propria'tion Account)

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Alternatively, combi~~d entry may be passed as:

_.,· Profit and t.:oss Appropriation Ne
,/ .'/'I To Partners''Capital/Current**1'Nc~ (Individually)
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(Interest on capitals transferred to Profit and Loss
,Appropriation AccouhtJ • ' '!

· 5. For Charging Interest ~n Drawings (i) Partners',Capital/Current** A/cs (ll"!dividually)

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· To lntere~t on Drawings Ale
I . _ " •t,,· ,..,.. • ., ..-~, ..- ~•_.,...,-:

(Interest charged on draw,ings) · ' _______,,,,

(ii) To Close Interest on Drawings Account , ,, I

1 lnterest on'-Drawings Ne
To, Profit and Loss Appropriation Ne
(Interest charged on drawings transferred to
Profit and Loss Appropriation Account)
A emotively, a combined entry may be passed as:
Partners' Capital/Current** A/cs (Individually)
To Profit and Loss Appropriation Ne,
(Interest charged on drawings and transferred to
Profit and Loss Appropriation Account)
 ' u, •udmentals 2.13
nsfer to Reserve out of Profit* Profit and Loss Appropriation A/c
6. for Tra
To Reserve A/c • ,
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(Amount transferre~ to Reserve)

_for Transfer of Credit Balance of Profit Profit and Loss Appropriation A/c
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and Loss Appropriation Account To Partners' Capital/Current** A .. ...Dr.
(being Divisible/Distributable Profit) (Balance profit transferred tota ·t /cs _Ond1v1dually) '
partners in their profit-sharing r~~i;) Current** Accounts of

s. for Transfer of Debit Balance of Profit Partners' Capital/Current**·A/cs

and Loss Appropriation Account
. T.o Profit and Loss Appropriation A/c
...or.
(Loss) (Loss transferred to Capital/Current** Ac f
in their profit-sharing r~Jio) counts o partners

*Reserve is an amount set aside out of profit to ,strengthen th fi . 1 ..

meet an unforeseen liability; For example, General Reserve . et nantcia hposition ~f the firm or to
1s o s rengt en the financial , .ti
while Workmen C ompensation Reserve is set aside to meet a claim of t ff 'f
. . posi on
sa , 1 any.
**Partners' Current Accounts are used when Capital Accounts are main
· t aine ·. Fixed
· d fo11 owing . Capital
Accounts Meth od .

Features of Profit and Loss Appropriation Account

1. It is an extension of the Profit and Loss Account.
2. It is prepared by the_partn~ r~hip firm~~·
3. It shows the appropriation of net."prop.t __or loss) c>r,_the accounting £.WOd.
4. Entries in this account are passed giving effect to the Partnership Deed.
Difference betw.een Profit and Loss Accou·nt and Profit and Loss Appropriation Account
tmtand L· DPlf'!'fon A«ount ·
1. Stage of It is prepared after Trading Account It starts It is prepared after Profit and Loss Account. It
Preparation with Gross Profit (in the credit side) or Gross starts with Net Profit (in the credit side) or Net
Loss (in the debit side) as is determined by the Loss (in the debit side) as is determined by the
Trading Account. Profit and Loss Account.
2. Objective It is prepared to determine net profit earned or It is prepared to show appropriation of net
net loss incurred during the accounti~g year. profit, i.e.; distribution of Net Profit or Net Loss
for the accounting period among the partners.

3. Nature of Items It is debited with the items of appropriation of

It is debited with the expenses (charge against
profit such as salary/commission to partners,
profit) and credited with the income, not being
interest on capital and transfer to reserve, etc.
operating income to determine net profit or
It is credited with the items of income being
loss for the accounting
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period.
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debited to Partners' Capital Accounts or Patners'
C~rrent Acco).mts such as interest on drawings.

4· Partnershi.p Deed Preparation of this account is guided by the

Preparatio~ of this account is not guided by
Partnership Deed or Agreement.
or Agreement the Partnership Deed or Agreement.
h· g Principle
While preparing this account, M tc m
S. Matching While preparing this account, Matching is not followed being not applicable.
Principle Principle (i.e., revenue is matched against
expenses) is followed.
. ·th the heIp of
Let f rtnership firm WI
·us understand complete set of final account~ 0 a pa . b. on Account.
foll 0 ·· · \ d L s Appropna
Wing illustration for better understanding of Profit an os