CBSE Class 12-commerce Answered

Basis

Profit and Loss Account

Profit and Loss Appropriation Account

1

Stage of Preparation

It is prepared after Trading Account and therefore, starts with Gross Profit or Gross Loss transferred from the Trading Account.

It is prepared after Profit and Loss Account and therefore, starts with Net Profit or Net Loss as transferred from the Profit and Loss Account.

2

Objective

It determines net profit earned or net loss incurred during the accounting year.

It shows appropriation of net profit i.e., distribution of Net Profit for the accounting period among the partners.

3

Nature of Items

It is debited with the expenses and credited with the income, not being business income to determine net profit for accounting period.

It is debited with the items of appropriation of profit like salary, commission, interest on capital, transfer to reserve, etc. and credited with the items of income being debited to Partners’ Capital Account or Current Accounts such as interest on drawings.

4

Partnership Deed

This account is not guided by the Partnership Deed or Agreement.

This account is prepared as guided by the Partnership Deed or Agreement or provisions of Indian Partnership Act, 1932.

5

Matching Principle

It follows the Matching Principle where revenue is matched against expense.

It does not follow the Matching Principle.