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.
- Salary to employees
- advertisement expenses
- Administrative expenses
- 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:-
- Interest on loan of partner to the firm
- 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
- Interest on Capital
- partners salary
- Partners commission
- 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.|
Q. Is Manager’s commission is a charge against profit?
Ans:- Yes, It is and recorded in debit side of profit an loss appropriation account.
Q. How loan by firm to partner is treated?
Ans:- It is treated as income to firm and recorded in credit side of profit and loss account.
Q. Is Rent paid to partner is charge against profit or appropriation?
Ans:- It is charge against profit and recorded in debit side of profit and loss account.
Q. How interest on loan by firm to partner is treated in partnership?
Ans:- It is the income to firm and credited to profit and loss Account.