Prepare appropriation account for a partnershipSection 8

Objective 7

Prepare appropriation account for a partnership• The trading and profit and loss account would be

prepared in the same way as a sole trader.• However, a partnership company has an additional

section shown in the profit and loss account• This section is known as the appropriation account• The account shows the distribution of profit or loss

to each partner

Prepare appropriation account for a partnership• The distribution of profits is calculated after the net

profit or net loss in the Profit and loss account• The accounts appropriated in this account are– Interest on capital– Partners’ salaries– Interest on drawings– Share of residual profit or loss

Prepare appropriation account for a partnership

• Interest on capital is:– paid as a reward to each partner for the amount of

capital invested to the business– an expense to the partnership– debited in the appropriation account

Prepare appropriation account for a partnership• Partners’ salaries are– Given to a partner or partners when he or she

may have more responsibility than the other partners such as conducting the day to day affairs in the company

– Partners’ salaries are expenses and they are debited in the appropriation account

Prepare appropriation account for a partnership• Interest on drawings– This is also shown in the appropriation account– It is a charge placed on individual partners for

withdrawing assets from the firm for their personal use (known as drawings)

– In this instance, the interest charged on drawings is a source of revenue to the partnership. It is shown on the credit side of the appropriation account

Prepare appropriation account for a partnership• Share of residual profit– This is the remaining amount shared to partners

(according to the partnership agreement or the application of the partnership act of 1890) after interest on drawings is added to the profit

– In addition, when all of the appropriated expenses such as interest on capital and partners’ salaries are deducted

• Horizontal sample of an appropriation account

• Example of profit and loss appropriation account- vertical style