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.
|Profit and Loss Account
|Profit and Loss Appropriation Account
|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.
|P&L account is prepared by all types of businesses.
|P&L appropriation account is prepared mainly by partnership firms.
|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.
|It is prepared after the trading account.
|It is made after the preparation of the profit and loss account.
|Items debited are all expenses (charged against profit)
|Items debited are all appropriations of profit. (how profit is divided)
|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.
|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)