Write a short note on Profit and Loss Appropriation Account.

The Companies Act has not prescribed any standard form for the preparation of Profit and Loss Account. Yet every Profit & Loss account of the company is to be prepared in such a form so as to give a true and fair view of the Profit or Loss of the company. Net Profit of a company is disclosed by the Profit & Loss Account.

When we prepare profit and loss account (with dividing into Trading Account, Profit and Loss Account and Profit and Loss Appropriation Account), the net profit or loss is transferred to the opposite side of the Profit and Loss Account ‘below the line’. All entries, relating to

  • Disposal or distribution of profit and
  • Adjustment relating to previous year etc. on that section

All below the line entries are made in the Profit & Loss Appropriation Account. The Profit & Loss Appropriation Account contains only those items which are considered appropriation of profits and not charge against the profit.

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