Difference between Profit and loss Account and Profit and loss Appropriation Account - Preparation of Profit & Loss Account

Difference between Profit and loss Account and Profit and loss Appropriation Account.

Sl. No.	Profit & Loss Account	Profit & Loss Appropriation Account
1	It is prepared after trading account	It is prepared after profit & loss account.
2	It is prepared to ascertain net profit or net loss.	It is prepared to distribute the net profit of the year among the partners.
3	This account is not prepared on the basis of partnership agreement .	This account is prepared on the basis of partnership agreement.
4	Expenses debited to this account are charge against profits. (Charge against profit indicates expenses to be deducted from profits)	Items debited to this account are appropriation of profits. (Appropriation of profits indicates distribution of net profit to various heads)

Illustration – 5

Arti & Bharati are partners in a firm sharing profits in the ratio of 3:2. The following trial balance was extracted from their books  as at 31st march 2014.

Trial Balance

As at 31^st march 2014

Debit Balance	Amount	Credit Balance	Amount
Opening stock	36000	Sales	940000
Purchases	620000	Returns outwards	4000
Return inwards	12000	Sundry  Creditors	43000
Sundry Debtors	125000	Interest	1000
Computer	50000	Arti’s Capital	300000
Rent (for 11 months)	22000	Bharti’s Capital	150000
Salary of staff	120000
Land and building	352000
Wages	16000
General charges	30000
Cash at bank	25000
Arti’s drawings	20000
Bharti.s rawings	10000
	1438000		1438000

          You are required to prepare Trading and profit and loss account and profit and loss appropriation account  for the year ended 31^st march 2014 and a balance sheet as on that date , taking into account the following adjustments.

1.     Stock on 31^st march was valued at Rs. 60000.

2.     Rent for the month of march has not been paid.

3.     Depreciate computer by 20%

4.     Barti is to be allowed a salary of Rs.5000 per month and partners are entitled to interest on capital @6% per annum.

Trading & Profit and Loss Account

Dr                                 for the year ended 31^st march 2014                Cr.

Particulars	Amount	Particulars	Amount
To Opening Stock To Purchases         620000 Less: Returns               Outwards    4000 To Wages To Gross profit c/d To Rent                   22000 Add: Outstanding      2000 To Salary of staff To General charges To Depreciation on Computer To net profit transferred to Profit & Loss  Appro. A/c	36000 616000 16000 320000	By Sales              940000 Less: Sales             Inwards      12000 By Closing Stock By Gross profit b/d By interest	928000 60000
	988000		988000
	24000 120000 30000 10000 137000		320000 1000
	321000		321000

Profit and Loss Appropriation Account

Dr                                 for the year ended 31^st march 2014                Cr.

Particulars	Amount	Particulars	Amount
To Bharti’s Salary To Interest on capital                  Arti         18000                  Bharti       9000 To Profit transferred to                                                                   Capital accounts                   Arti         30000                   Bharti     20000	60000 27000 50000	By Net profit as per      Profit and loss a/c	137000
	137000		137000

Balance Sheet of the Firm

As at 31^st March 2014

Liabilities	Amount	Assets	Amount
Sundry Creditors Outstanding Rent Arti’s Capital        300000 Less : Drawings      20000                                                                         280000 Add: Interest on                  Capital        18000          Net Profit       30000         Bharti’s Capital     150000 Less : Drawings       10000                                140000 Add: Interest on                  Capital         9000        Net Profit  20000                 Salary             60000	43000 2000 328000 229000	Cash at bank Sundry Debtors Closing Stock Computer               50000 Less; Depreciation 10000 Land & Building	25000 125S000 60000 40000 352000
	602000		602000