what is the difference between charge against profit and appropriation of profit ?

A very good attempt by all of you. The difference between the two has been summarised below:
 
Basis of Difference Charge against/on Profits Appropriation of Profits
Meaning This implies deduction of expenses from the profits in order to compute net profit/net loss during the accounting year. This implies distribution of available net profits left out after providing all expenses.
Compulsion It is a compulsory or mandatory obligation that a firm has to bear. It is not compulsory in nature.
Situation   It is provided under all circumstances- irrespective of profits or losses. It is provided only in case a firm has profits (and not in case of losses).
Relevant Accounts It is recorded (debited to) the Profit and Loss Account. It is recorded (debited to) the Profit and Loss Appropriation Account.
Effect It affects net profit. It does not net profit.
Accounting Order It is done before all appropriations of items. It is done after all charges of items.
 

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charge means that the amount has to be given whether there is profit or loss eg.interest on loan and appropriation means it is not compulsory to give the amt. in case of loss eg. int. on drawings .
  • 2
Charge against profit is the expenses which the firm is bound to pay whether it earns adequate profit or not. Even at times of adversity these expenses have to be met by the firm. Example- Interest on partner's loan, Rent paid to partner etc.

If the firm earns profit for the year then before transferring the net profit to balance sheet like in sole proprietorship, the firm transfers the profit into Profit & Loss appropriation A/C where all the divison of profit takes place (in other words expenses paid on partners)
For example- interest on capital, Salary to partner, Commission to partner
NOTE: Reserves are also shown on debit side of the Profit & Loss Appropriation A/C
At last the profit remainin is divided among the partners in the specified ratio if given otherwise equally which is shown on debit side of this account.
  • 0
Hi Mishal Goyal, ur answer is correct but interest on drawings is an income not an expense to the firm...

charge against profit or appropriation of profit is for expenses only..
  • 4
thanks sankar i hv jst came in clss12 n i hv studied this in clss11 so i ws not knowing this thing thank u fr telling :-)
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