Accountancy Part AAccounting for Partnership

The Profit and Loss Appropriation Account is merely an extension of t…

The Profit and Loss Appropriation Account is merely an extension of the Profit and Loss Account of the firm, which, among the following, is not shown in the Profit and Loss Appropriation Account?

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → All adjustments in respect of payment to Vendor

The Profit and Loss Appropriation Account starts with the net profit of the firm and shows how it is shared among the partners: interest on capital, salary and commission to partners, interest on drawings, and the share of each partner in the balance. A payment to a vendor (a supplier) is a business expense or a payment to an outsider, so it is dealt with in the Profit and Loss Account or the balance sheet, never in the appropriation account.

Option (1) All adjustments in respect of partner's salary — Shown in the appropriation account. Salary to a partner is an appropriation of profit.

Option (3) All adjustments in respect of interest on capital — Shown in the appropriation account. Interest on partners' capital is allowed out of profit.

Option (4) All adjustments in respect of interest on drawings — Shown in the appropriation account. It is charged to the partners and credited to this account.

NCERT (2026-27 edition):
Profit and Loss Appropriation Account – “Profit and Loss Appropriation Account is merely an extension of the Profit and Loss Account of the firm. It shows how the profits are appropriated or distributed among the partners. All adjustments in respect of partner’s salary, partner’s commission, interest on capital, interest on drawings, etc. are made through this account.”