Advanced Accounting Code 444 Solved Assignment 2 for the semester autumn 2016. Advance accounting code 444 assignment for semester autumn 2016 mainly describes the profit and loss appropriation account in detail. This assignment moreover explains what entries found on the debit and credit side of profit and loss appropriation account.
CODE 444 SOLVED ASSIGNMENT 2 AUTUMN 2016
Q No 1: What is Profit & Loss Appropriation Account? Which items are usually found on the debit and credit sides of such account, explain each of them.
Answer: Introduction I he main intention or preparing a profit and loss appropriation account is to show the distribution of profit among the partners. It is debited with interest on capital and remuneration to partners and credited with the net profits b/d from the profit and loss account and interest on drawings. Prom and loss appropriation accounts are necessary for businesses, especially partnerships. Because they help account for the expenditures and income that are included in profit and loss statements these accounts should not be confused with the typical profit and loss account. But rather seen as an extension of it. Whereas the former is more general in nature, the Profit and loss appropriation account is far more specific Appropriation I he motet and loss appropriation account should be treated as a separate account from the profit and loss account. The appropriation account is designed to provide an indication of how profit transferred from the profit and loss account is spent. Appropriations are generally placed into one of tour broad categories: funds designated for removal by partners, capital reserves, reserves earmarked to improve capital and surplus funds to be carried into the next accounting period
The profit and loss appropriation account is set up like other general ledgers. It usually consists of a debit column and a credit column. The debits include items such as the funds that are transferred back to the general profit and loss account at the end of the accounting period. Other debits Include money put in the general company reserve accounts, accounts designated for dividend payments and payments made on items such as income taxes.
When funds are added to the profit and loss appropriation account, these are designated as a credit in the records. The primary entry in the account comes in the form of the surplus money transferred to the account from the profit and loss account at the end of the previous accounting period. Net profit at the end of the current year is also added to this account. Other credits may include money taken from the general reserve or any other account in which a surplus can be designated for a specific purpose in the profit and loss appropriation account.