Similar to the Profit and Loss Account, Profit and Loss Appropriation Account is also a nominal account. This implies that the appropriation account is prepared by following the rule of nominal account,”Debit all expenses and losses and Credit all incomes and profits”. The following are the steps to prepare Profit and Loss Appropriation Account
Steps to Prepare Profit and Loss Appropriation Account
The following are the steps to prepare the Profit and Loss Appropriation Account.
Step 1: Show Net Profit on the credit side of the Profit and Loss Appropriation Account. If Net Loss is given, then it is shown on the debit side of the account.
Step 2: The items such as Interest on Partners’ Capitals, Partners’ Salary, Partners’ Commissions, Bonus to the Partners, profit transferred to reserves, etc. are shown on the debit side of the Profit and Loss Appropriation Account.
Step 3: If Interest on Partners’ Drawings is given, then it is shown on the credit side of the account.
Step 4: Finally, both the sides are totaled. If the total of the debit side exceeds that of the credit side, then the difference amount is shown on the credit side of the account as ‘Loss transferred to Partners’ Capital Accounts’. On the contrary, if the total of the credit side exceeds that of the debit side, then the difference amount is shown on the debit side of the account as ‘Profit transferred to Partners’ Capital Accounts’.
Also, Read
Balance Sheet
The balance sheet is the last financial statement that is prepared by any organization. This statement helps to ascertain the true financial position of an enterprise at the end of an accounting period
Profit and Loss Account
A profit and Loss Account is the second financial statement prepared by an organization. This account is prepared to ascertain the net results of a firm in form of net profit earned or net loss incurred during an accounting period.
Accounting Software
Accounting software is an integral part of the computerized accounting system. The accounting software should be selected after considering the level of skill and proficiency of the accounting professionals.
What are Accounting Reports?
Accounting Reports: When the collected data is processed and manipulated in a useful sense that can be understood by the users without any ambiguity, then it becomes information.
Transaction Processing System
Transaction Processing System (TPS) refers to a computerized system that records, processes, validates, and stores routine transactions that occur in various functional areas of a business on daily basis.