RAVI TEJA S (student) (706 Points)
09 September 2009what is the difference between profit & loss appropration and profit & loss adjustment account?
Ashish M
(Chartered Accountant)
(2731 Points)
Replied 10 September 2009
Appropriation account is the one which is opened for the distribution of hte profits of a yr between the one who have right over it, i.e. for dividend, transer to reserves, statutory or otherwise, etc. It comes below the line items.
Appropriate means share or divide or distribute. The purpose of this account is to enable distribution of profits among those entities who have a right over profits.
On the other hand, adjustment account is opened to make adjustments after the accounts for hte yr have been prepared of the errors of past yrs......
Say, an error relating to previous years being rectified now. If there is a profit on account of the rectification, it should pertain to the previous years and not the current period. Therefore in such situations we make use of a temporary nominal account P & L account. Since this is also a nominal account, it should also be closed at the end of the accounting period by transfer to P & L appropriation account. Where there is no separate appropriation account it should be transferred to Capital a/c since that is where the profits have gone...........
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