Is a profit and loss appropriation account made first or is it partners capital account? Why?

CA Manisha (CA) (1397 Points)

16 November 2022  

A profit and loss appropriation account is created so that the partners can see how the business's earnings are being split up. Net profits per day from the P&L account and interest on drawings are credited to this account, while interest on capital and partner compensation are debited.

Now, while doing the math, it's a good idea to set up the Partner's Capital Account and the Profit and Loss Appropriation Account.

BUT

Truth be told.

The Allocation of Profits and Losses No new accounts will be made. True, no such account has been prepared. Accountancy procedures have shifted as a result of technological advancements.

It should be made abundantly clear that each Post in a ledger has the same impact on all ledgers. Because of this, it is not necessary to make an opening or closing balance sheet.

The affected journals will be used to generate the P&L appropriation account and the Partner's Capital Account, respectively.

If you want to make sure you don't forget any adjustments, my recommendation is to prepare all of the accounts at the same time. In addition, you can finish the calculation by the time you've read all the adjustments.

now Now, Regarding Your Obtained Reason for Asking

In other words, why do we need a profit-and-loss approval account in the first place?
Notwithstanding the following, the answer is the following: (i)interest on Capital; (ii)interest on Drawings; (iii)partner's remuneration regardless of profit or loss; (iv)partners' commission; (v)any loss or profit taken by the partner/partners exclusively;

The P&L Appropriation Account is set up before the Partners' Capital Account so that the Appropriated Profit can be allocated according to the profit sharing ratio.

For This Reason -

A. Partner's Capital Account is simplified, as the bulk of the calculation has already been done; all that remains to be done is posting.

The Partner's Capital Account Can Be Very Untidy Because: B. There Are Two Or More Partners, And In The Event Of Admission, Retirement, Or Death, There Are At Least Three