Question

difference between profit and loss a/c and profit and loss appropriation a/c​

Answer 1

ANSWER :

Difference between Profit and Loss A/C and Profit and Loss Appropriation A/C are as follows :

• ❍ Sequence of Preparation :↦ Profit and Loss A/C is prepared after preparing the Trading Account. Whereas, Profit and Loss Appropriation A/C is prepared after preparing Profit and Loss A/C.

• ❍ Objective of Preparation :↦ The objective of preparing Profit and Loss A/C is to ascertain the net profit or net loss of a business. On the other hand, the objective of preparing Profit and Loss Appropriation A/C is to appropriate the net profit or net loss among the partners.

• ❍ Basis of Preparation :↦ Profit and Loss A/C is prepared with the balance of Trading Account and all indirect expenses and indirect incomes are considered in this account. Whereas, Profit and Loss Appropriation A/C is prepared on the basis of partnership agreements/partnership deed.

• ❍ Necessity of Preparation :↦ Preparation of Profit and Loss A/C is necessary for each and every profit concern business. On the other hand, preparation of Profit and Loss Appropriation A/C is necessary where appropriation of profit/loss is needed, i.e., in case of a company, a partnership firm etc.

• ❍ Existence of Balances :↦ Profit and Loss A/C has neither opening opening balance nor closing balance. Whereas, Profit and Loss Appropriation A/C may have both opening balance and closing balance.

• ❍ Disclosure :↦ Profit and Loss A/C discloses how the profit is earned or loss is incurred in the business firm. On the other hand, Profit and Loss Appropriation A/C discloses how the net profit or net loss is appropriated.