Question

Appropriation of profits is shown under which account?

• A. Cost Sheet
• B. Process Account
• C. Profit and Loss Account
• D. Profit and Loss Appropriation Account

Hint:

Do not confuse expenses with appropriations. Expenses (like salaries and rent) are deducted to calculate net profit, while appropriations (like dividends and reserves) show how you use that net profit.

Answer 1

The Correct Option is D

Step 1: Defining Profit Appropriation:
Appropriation of profit refers to how a company's net earnings are distributed at the end of the year, such as paying dividends to shareholders, transferring money to general reserves, or retaining earnings for future growth.

Step 2: Differentiating Between Expenses and Appropriations:

• Operating Expenses: Recorded in the Profit and Loss Account to determine Net Profit.
• Appropriations: Once Net Profit is calculated, it is transferred to a separate account where distributions are recorded. This account is called the Profit and Loss Appropriation Account.

Step 3: Evaluating the Options:
The Profit and Loss Appropriation Account (D) is specifically designed to show how net profit is distributed. This makes (D) the correct answer.