• Profit and Loss Appropriation account discloses how net profits of an accounting period have been appropriated. It comprises of all adjustments relating to partners like salaries, interest on capital etc.
  • It is different from profit & loss account. P&L shows incomes and expenses for a particular period to arrive at the profit earned or loss incurred.
  • In capital accounts of partners transactions relating to partners are recorded in their respective accounts. It Includes capital, drawings, salaries, interest on capital, etc.
  • Capital accounts can be either fixed or fluctuating.
  • In fixed capital account capital of the partners remains fixed except if additional capital is introduced or capital is withdrawn as per agreement between the partners. Adjustments regarding share of profit/ loss, salaries, interest on capital, interest on drawings etc are done through partners’ current accounts.
  • In fluctuating capital method, the capital of partners keep on changing because all the adjustments are done through partners’ capital accounts only, like share of profit/ loss, salaries, interest on capital, interest on drawings, etc.
  • Drawings means the amount withdrawn in cash or in kind from the partnership firm for personal purpose by partners.
  • Interest on drawings is calculated with reference to the time period for which the money is withdrawn.
  • Interest on capital is credited to a partner on the basis of agreed rate; and with reference to the time period for which the capital remained in the business.
  • Manager's commission is charge against profits and not an appropriation of profits and is shown in profit & loss account.
  • Partner's commission is allowed when partnership deed provides for the same. It is an appropriation of profits and not a charge against profits.
  • Sometimes a partner may lend personal asset to the firm. It is a charge against profit, hence, it is debited to profit & loss a/c. If a partner has given loan to the firm, he is entitled to receive interest on such loan at an agreed rate of interest.

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