What is the Difference Between P&L and P&L Appropriation Account?
🆚 Go to Comparative Table 🆚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:
- 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.
- Preparation: The P&L account is prepared by all types of businesses, whereas the P&L appropriation account is mainly prepared by partnership firms.
- 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).
- 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.
- 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.
- 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:
Feature | Profit and Loss (P&L) Account | Profit and Loss Appropriation Account |
---|---|---|
Purpose | Determine the Net Profit or Net Loss of an organization for a given accounting period. | Allocate and distribute Net Profit among partners, reserves, and dividends. |
Preparation | Prepared by all types of businesses. | Prepared mainly by partnership firms and companies. |
Matching Principle | Follows the matching principle, i.e., matching revenue against expenses. | Does not follow the matching principle. |
Opening and Closing Balances | Does not have an opening or closing balance, as it is prepared for a specific accounting year. | Has an opening and closing balance, as it is brought forward from the previous year and will be carried forward to the next year. |
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.
- Balance Sheet vs Profit vs Loss
- Accrued Expense vs Accounts Payable
- Accounts Payable vs Accounts Receivable
- Sales Ledger vs Purchase Ledger
- Allocation vs Apportionment
- Purchase vs Acquisition (Method of Accounting)
- Capital Account vs Current Account
- Bookkeeping vs Accounting
- Account Payable vs Note Payable
- Financial Accounting vs Cost Accounting
- Cash Accounting vs Accrual Accounting
- T Account vs Ledger
- Accruals vs Provisions
- Account Balance vs Available Balance
- Accounting vs Finance
- Costing vs Cost Accounting
- Management Accounting vs Cost Accounting
- Cash vs Accrual (Accounting)
- General Ledger vs Trial Balance