Profit and Loss Vs Profit and Loss Appropriation Account
Profit and loss appropriation account is an extension of the profit and loss account itself, however, there is a fundamental difference between profit and loss & profit and loss appropriation account.
By definition, a P&L account or Income statement is one of the three financial statements of an organization which summarizes revenues and expenses to ascertain net profit or a net loss of the organization for a specific time period.
By definition, a P&L appropriation account is used to demonstrate the division or allocation of profit/losses among the owners.
|Basis||Profit and Loss Account||Profit and Loss Appropriation Account|
|Purpose||P&L account is used to determine the Net Profit or Net Loss of an organization for a given accounting period.||P&L appropriation account is used for the allocation and distribution of Net Profit among partners, reserves and dividends.|
|Made by||P&L account is prepared by all types of businesses.||P&L appropriation account is prepared mainly by partnership firms.|
|Balances||Profit and loss account don’t have any opening or closing balance as it is prepared for a specific accounting period.||The profit and loss appropriation account may have carried forward balance from the previous accounting period.|
|Timing||It is prepared after the trading account.||It is made after the preparation of the profit and loss account.|
|Nature||Items debited are all expenses (charged against profit)||Items debited are all appropriations of profit. (how profit is divided)|
|Partnership||Preparation of P&L account is not based on a partnership agreement (exception – interest on a loan from partners)||The preparation of P&L account is based on a partnership agreement.|
|Principle||The matching principle is followed i.e. expenses for an accounting period are matched against related incomes.||The matching principle is not followed while preparing a P&L appropriation account.|
Related Topic- What are Balance Sheet Accounts?
Format of Both Accounts
Format of P&L account
Format of P&L Appropriation account (partnership)