Explanation of Profit and Loss Appropriation Account and Calculation of Profit:

Profit and Loss Appropriation Account is a statement that shows the appropriation of profit earned by a business during a particular accounting period. The account is prepared after preparing the Trading and Profit and Loss Account.

The account shows how the net profit earned during the year is distributed among various stakeholders like shareholders, partners, reserves, and retained earnings.

The following are the typical items that are shown in the Profit and Loss Appropriation Account:

- Net profit earned during the accounting period
- Transfers to reserves
- Payment of dividends to shareholders
- Distribution of profits to partners
- Retained earnings

Calculation of Profit:

The profit is calculated by subtracting the total expenses from the total revenue earned during the accounting period.

In this case, if the profit earned is 2700, it means that the revenue earned by the business during the accounting period was more than the total expenses incurred.

It is important to note that the profit earned during the accounting period is not the same as the cash balance available with the business. The cash balance is affected by various factors like cash inflows and outflows, investments, and financing activities.

Conclusion:

In conclusion, the Profit and Loss Appropriation Account is an important statement that shows how the net profit earned by a business is distributed among various stakeholders. The profit is calculated by subtracting the total expenses from the total revenue earned during the accounting period. If the profit earned is 2700, it means that the revenue earned was more than the total expenses incurred.

Why profit is 2700