Introduction
After calculating the profit for the year, the next step in partnership accounting is to distribute this profit among the partners.
This distribution is shown in the Appropriation Account.
Items Included in an Appropriation Account
- Interest on capital
- Partner salaries
- Interest on drawings
- Remaining profit shared between partners
Example of an Appropriation Account
Profit for the Year
40,000
Less: Interest on Capital
6,000
Less: Partner Salary
4,000
Remaining Profit
30,000
Share of Profit (A 60%)
18,000
Share of Profit (B 40%)
12,000
Why Appropriation Accounts Are Prepared
- To allocate profit between partners
- To record interest on capital
- To record partner salaries
- To determine each partner's final share of profit
Practice Question
Ali and Ahmed share profits in the ratio 3:2.
- Profit for the year = 50,000
- Interest on capital = 6,000
- Partner salary = 4,000
Calculate the remaining profit and distribute it between the partners.
Quick Check
What is the purpose of an appropriation account?
- To calculate revenue
- To distribute profit among partners
- To record assets
Show Answer
Correct Answer: To distribute profit among partners.