Steps to Prepare Profit and Loss Appropriation Account

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’.


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