What is the Difference Between P&L and P&L Appropriation Account?

The Profit and Loss (P&L) account and the Profit and Loss Appropriation account are two different financial statements used to assess a company's financial performance. Here are the key differences between them:

1. Purpose: The P&L account is used to determine the net profit or net loss of an organization for a given period, while the P&L appropriation account is used for the allocation and distribution of net profit among partners, reserves, and dividends.
2. Preparation: The P&L account is prepared by all types of businesses, whereas the P&L appropriation account is mainly prepared by partnership firms.
3. Nature: In the P&L account, items debited are all expenses (charged against profit), while in the P&L appropriation account, items debited are all appropriations of profit (how profit is divided).
4. Balances: The P&L account does not have any opening or closing balance, as it is prepared for a specific accounting period. In contrast, the P&L appropriation account may have carried forward balance from the previous year and will be carried forward to the next year.
5. Timing: The P&L account is prepared after the trading account, while the P&L appropriation account is made after the preparation of the profit and loss account.
6. Partnership: The preparation of the P&L account is not based on a partnership agreement (except for interest on a loan from partners), while the preparation of the P&L appropriation account is based on the partnership agreement.

In summary, the P&L account focuses on calculating overall profitability or loss, while the P&L appropriation account delves into how that profit is divided among different parties involved in the business.

Comparative Table: P&L vs P&L Appropriation Account

Here is a table highlighting the differences between the Profit and Loss (P&L) Account and the Profit and Loss Appropriation Account:

In summary, the P&L Account focuses on calculating the overall profitability or loss of a business, while the P&L Appropriation Account shows how the profits are distributed to relevant aspects such as partners, reserves, and dividends.