Accounting Concept Followed by Rohan

Rohan followed the concept of Profit and Loss Appropriation Account while calculating his net profit. This concept is a part of the Double Entry System of Accounting and is used to determine the distribution of profits among the partners or owners of a business.

Explanation of Profit and Loss Appropriation Account Concept

The Profit and Loss Appropriation Account is prepared at the end of the financial year to distribute the profits earned by the business among the partners or shareholders. The account shows the net profit or net loss of the business and the amount that is to be distributed among the partners or shareholders. The account is divided into two sections:

1. Profit and Loss Account - This section shows the revenue earned and expenses incurred during the financial year and calculates the net profit or net loss of the business.

2. Appropriation Account - This section shows the amount that is to be distributed among the partners or shareholders. The amount is calculated after deducting the expenses and taxes from the net profit earned by the business.

In Rohan's case, he used the Profit and Loss Appropriation Account concept to distribute the profits earned by his business among himself. He calculated the net profit of the business by subtracting the expenses incurred from the revenue earned. He then deducted the expenses from the amount he earned by selling 4/5th of the goods. After that, he arrived at the net profit of 350000 and distributed it among himself.

Conclusion

Thus, Rohan used the Profit and Loss Appropriation Account concept to calculate his net profit and distribute it among himself. The concept helps in determining the distribution of profits among the partners or shareholders of a business.