Difference between Charge against Profit and Appropriation of Profit

Are you confused and looking for the difference between charge against profit and Appropriation as per the syllabus of partnership chapter class 12 CBSE Board?

See, this distinction would help you a lot. because there certain items that has to be recognized as charge against profit not aappropriation.

Meaning of charge against profit

In Accounting terms, charge against profit refers to the expenses that have to be paid irrespective of profit and loss of the firm. In other words even if a firm incurs a loss such expenses have to be paid.

For example:-

1. Salary to employees
2. advertisement expenses
3. Administrative expenses
4. factory expenses

All expenses with outside world, have to be met, whether there is a profit or loss.

Where Charge against profit are recorded

Charge against profit are recorded debit side of Profit and loss Account

Charge against profit items related to Partners as per Class 12 Commerce

There are certain items that are related to partners but are considered as charge against profit.

The Items are:-

1. Interest on loan of partner to the firm
2. Rent to partner

Is Managers commission is a charge against profit

Yes, managers commission is also a charge against profit and recorded in debit side of profit and loss account.

Note:- All charge against profit expenses have to recorded whether paid or not before appropriation (distribution) of profit among partners.

Meaning of Appropriation in partnership chapter class 12

In Accounting language, appropriation means distribution of profit or loss among the partners once all charge against profit are recorded in book of accounts.

In order to appropriate profit or loss among partners a special account profit and loss appropriation account is prepared. In this account remaining profit is appropriate among partners in different heads. such as

1. Interest on Capital
2. partners salary
3. Partners commission
4. Interest on drawings (it is charge from partners thus income to firm)

After appropriating the above item remaining profit is called the distributable profit and appropriate among partners in their profit sharing ratio.

Distinction between charge against profit and appropriation of profit

S.N	Basis	Charge Against Profit	Appropriation out of profit
1.	Nature	It is an expense deducted out of revenue to determine net profit or loss for the year.	It refers to distribution of net profit of the year among partners under different heads as per the partnership Deed.
2.	Recording	It is debited to profit and loss account	It is debited to profit and loss appropriation account.
3.	Priority	It is allowed before appropriation of profit.	It is appropriated after accounting all charges
4.	Examples	managers commission, the salary of employees, rent to partners, etc	Interest on capital, Salary to partners, General Reserve, etc.
5.	Necessary or not	It is necessary to make charges against profits even if there is a loss.	Appropriations are made only when there is profit.

S.N	Topics
1.	Definition of Partnership
2.	Features of Partnership
3.	What are the Rights of Partners
4.	What is Partnership Deed, Meaning, content
5.	What are the Rules in the absence of a Partnership Deed
6.	What are the Rules in the absence of Partnership Deed
7.	What are the Liabilities of Partners
8.	Profit and Loss Appropriation Account format, features
9.	Journal Entries of Profit and Loss Appropriation A/c
10.	Difference between Profit and Loss A/c and Profit and Loss Appropriation A/c

S.N	Topics
11.	Difference between charge against profit and appropriation of Profit
12.	Treatment of Interest on loan by the firm to the partner
13.	Treatment of Interest on loan by the Partner to the firm
14.	Treatment of Rent paid to partner in partnership firm
15.	Accounting Treatment of Managers commission in partnership
16.	Items not shown in Profit and Loss Appropriation A/c
17.	Methods of Maintaining Partners Capital A/c
18.	Accounting Treatment When Appropriation is more than the Available Profit
19.	Difference Between Fixed Capital A/c and Fluctuating Capital A/c
20.	Difference Between Capital and Current A/c