PROFIT AND LOSS APPROPRIATION ACCOUNT

This is a nominal account prepared to show how net profit has

been distributed among the partners. It is the extension of profit and
loss account and therefore, the credit balance of the Profit and Loss
Account is transferred to Profit and Loss Appropriation Account. Such
amount is then utilized for the following:
 Interest on the capitals of partners, if provided by the partnership
deed.
 Salaries or commissions to partners, if provided by the
partnership deed.
 Transferring part of profit to Reserve.
 Distribution of profit among the partners in their profit-sharing
ratio.
Journal Entries for Preparing Partner’s Capital/ Current Account and
Profit and Loss Appropriation A/c
1. For Capital Brought in by a Partner
Bank/Cash A/c Dr.
To Partner’s Capital A/c
2. For transferring the balance in Profit and Loss Account:
a) If Profit and Loss Account shows a credit balance (net profit)
Profit and Loss A/c Dr.
To Profit and Loss Appropriation A/c
b) If Profit and Loss Account shows a debit balance (net loss)
Profit and Loss Appropriation A/c Dr.
To Profit and Loss A/c.
3. Interest on Partner’s Capital:
a) For Interest Allowed on Partner’s Capital
Interest on Capital A/c Dr.
To Partner’s Capital/ Current A/c (individually)

NOTES PREPARED BY ARUN KIZHAKKEYIL FOR THE STUDENTS OF CHAVARA VIDYAPEETH 4

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 b) For transferring interest on capital to Profit and Loss
Appropriation Account :
Profit and Loss Appropriation A/c Dr.
To Interest on Capital A/c
4. Drawings made by Partners
Partner’s Capital/Current A/c’s (individually) Dr.
To Drawings A/c
5. Interest on Drawings:
a) For charging interest on drawings to partners’ capital
accounts
Partner’s Capital/Current A/c’s (individually) Dr.
To Interest on Drawings A/c
b) For transferring interest on drawings to Profit and Loss
Appropriation Account:
Interest on Drawings A/c Dr.
To Profit and Loss Appropriation A/c
6. Partner’s Salary:
a) For crediting partner’s salary to partner’s capital account :
Salary to Partner A/c Dr.
To Partner’s Capital/Current A/c (individually)
b) For transferring partner’s salary to Profit and Loss
Appropriation Account:
Profit and Loss Appropriation A/c Dr.
To Salary to Partner’s A/c
7. Partner’s Commission:
a) For crediting commission to a partner to partner’s capital
account.
Commission to Partner A/c Dr.
To Partner’s Capital/ Current A/c’s (individually)

NOTES PREPARED BY ARUN KIZHAKKEYIL FOR THE STUDENTS OF CHAVARA VIDYAPEETH 5

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 b) For transferring commission paid to partners to Profit and
Loss Appropriation Account.
Profit and Loss Appropriation A/c Dr.
To Commission to Partners Capital/ Current A/c
8. Share of Profit or Loss to Partners after appropriations
a) If Profit: (Credit Balance of P&L App. A/c)
Profit and Loss Appropriation A/c Dr.
To Partner’s Capital/Current A/c’s (individually)
b) If Loss: (Debit Balance of P&L App. A/c)
Partner’s Capital/Current A/c (individually) Dr.
To Profit and Loss Appropriation A/c
FORMAT OF PROFIT AND LOSS APPROPRIATION ACCOUNT
Profit and Loss Appropriation Account
Dr. for the Year Ended DD/MM/YYYY Dr.
Particulars Rs. Particulars Rs.
To Profit and Loss A/c xxx By Profit and Loss A/c 92,000
(Net loss) (Net Profit)
To Interest on Capitals: By Interest on Drawings:
A 6,000 A 3,000
B 7,500 13,500 B 4,500 7,500
To A’s Salaries 24,000
To B’s Commissions 10,000
To Reserve 25,000
To Profit transferred to:
A’s Capital A/c 9,000
B’s Capital A/c 18,000 27,000

99,500 99,500

NOTES PREPARED BY ARUN KIZHAKKEYIL FOR THE STUDENTS OF CHAVARA VIDYAPEETH 6

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