What is the purpose of preparing a profit and loss appropriation account in a partnership?
Practice Questions
1 question
Q1
What is the purpose of preparing a profit and loss appropriation account in a partnership?
To calculate net profit
To distribute profits among partners
To record all expenses
To prepare the balance sheet
The profit and loss appropriation account is prepared to distribute the net profit among the partners according to their profit-sharing ratio.
Questions & Step-by-step Solutions
1 item
Q
Q: What is the purpose of preparing a profit and loss appropriation account in a partnership?
Solution: The profit and loss appropriation account is prepared to distribute the net profit among the partners according to their profit-sharing ratio.
Steps: 6
Step 1: Understand that a partnership is a business owned by two or more people.
Step 2: Know that when a partnership makes money, it has a net profit.
Step 3: Realize that the net profit needs to be shared among the partners.
Step 4: Learn that the profit and loss appropriation account is a special account used for this purpose.
Step 5: Remember that partners share profits based on a pre-agreed ratio, called the profit-sharing ratio.
Step 6: Conclude that the purpose of this account is to show how much profit each partner gets.
