Difference between Charge against Profit and Appropriation of Profit

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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.NBasisCharge Against ProfitAppropriation out of profit
1.NatureIt 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.RecordingIt is debited to profit and loss accountIt is debited to profit and loss appropriation account.
3.PriorityIt is allowed before appropriation of profit.It is appropriated after accounting all charges
4.Examplesmanagers commission, the salary of employees, rent to partners, etcInterest on capital, Salary to partners, General Reserve, etc.
5. Necessary or notIt 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.

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Anurag Pathak
Anurag Pathak is an academic teacher. He has been teaching Accountancy and Economics for CBSE students for the last 18 years. In his guidance, thousands of students have secured good marks in their board exams and legacy is still going on. You can subscribe his youtube channel and can download the Android & ios app for free lectures.
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