Question

why is profit and loss appropriation account prepared?​

Answer 1

In case of a sole proprietorship, there is a single owner and any addition in the capital in form of net profit or reduction in form of drawings is directly done from the firm’s capital account. However, in case of a partnership, “Profit and Loss Appropriation Account” is created to demonstrate the change in each partner’s individual capital as a result of profit or loss incurred by the firm.

P&L Appropriation account helps to show a clear distinction between the capital contribution of each partner and the changes thereafter. Profit and Loss Appropriation Account is used for allocation of net profit among different partners. It is seen as an extension of the profit and loss account itself.

It shows how the profits are appropriated or distributed among the patners.