The Profit and Loss Appropriation Account is merely an extension of the Profit and Loss Account of the firm, which, among the following, is not shown in the Profit and Loss Appropriation Account?
The Profit and Loss Appropriation Account is merely an extension of the Profit and Loss Account of the firm, which, among the following, is not shown in the Profit and Loss Appropriation Account?
Solution
The Profit and Loss Appropriation Account is prepared to show the distribution of net profit among partners after all business expenses have been recorded in the main Profit and Loss Account.
Items appearing in Profit and Loss Appropriation Account:
- Partner's salary
- Interest on capital
- Interest on drawings
- Partner's commission
- Distribution of remaining profit among partners
These are all internal adjustments related to partners' entitlements and contributions.
Payment to Vendor is a business expense related to purchases or services received from external parties. This is recorded in the main Profit and Loss Account itself, not in the Appropriation Account.
The Profit and Loss Appropriation Account only deals with appropriation (distribution) of profits among partners, not with business expenses or payments to external parties.
Therefore, Option 2 is correct as payment to vendor is not shown in the Profit and Loss Appropriation Account.
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