Accounting – 5.2 Partnerships | e-Consult

The appropriation account is prepared after the profit and loss account because the profit and loss account determines the company's profit or loss for the accounting period. This profit or loss is the starting point for the appropriation account. The appropriation account essentially allocates this profit or loss to different uses.

The following information from the profit and loss account is used in the appropriation account:

• Net Profit (or Net Loss): This is the key figure. If the profit and loss account shows a profit, the appropriation account will show how that profit is distributed. If it shows a loss, the appropriation account will show how that loss is allocated (e.g., to reduce retained earnings).
• Tax Expense: The profit after tax is the figure that is available for distribution. The appropriation account reflects the profit after deducting tax.

Therefore, the appropriation account builds upon the information presented in the profit and loss account to provide a comprehensive view of how the company's financial performance is being utilized. It shows the relationship between the company's profitability and the distribution of that profitability to stakeholders.