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What is the difference between Profit and Loss & Profit and Loss Appropriation Account?
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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. |
| Â Timing | It is prepared after the trading account. | It is made after the preparation of the profit and loss account. |
| Â 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)
