What is an Appropriation Account?
Appropriation is the act of setting aside money for a specific purpose. In accounting, it refers to a breakdown of how a firm’s profits are divided up, or for the government, an account that shows the funds a government department has been credited with. A company or a government appropriates funds in order to delegate cash for the necessities of its business operations.
How Appropriation Accounts Work
In general accounting, appropriation accounts are mainly prepared by partnerships andlimited liability companies(LLCs). They are an extension of theprofit and loss statement, showing how the profits of a firm are allocated to shareholders or to increase reserves indicated in thebalance sheet. A company might appropriate money for short-term or long-term needs to finance things such as employee salaries, research and development, and dividends.
For a partnership, the primary purpose of the appropriation account is to show how profits are distributed among the partners.For an LLC, the appropriation account will start with profits before taxes and then subtract corporate taxes and dividends to arrive atretained profits.
Government appropriation accounts come into play when they create theirbudgets. Appropriationcreditsare taken out of estimated revenues from taxes and trade and allocated to the proper agencies. Credits in appropriation accounts that are unused may be redistributed to other agencies or used for other purposes.
Appropriations for the U.S. federal government are decided by Congress through various committees. The U.S. government's fiscal year runs from October 1 through September 30 of each calendar year.
Key Takeaways
- Appropriation accounts show how companies and governments distribute their funds.
- Companies and governments appropriate funds in order to delegate cash for the necessities of business operations.
- In general accounting, appropriation accounts are mainly prepared by partnerships andlimited liability companies.
- Government appropriation accounts come into play when they create theirbudgets. Appropriationcreditsare taken out of estimated revenues from taxes and trade and allocated to the proper agencies.
Real World Example of Appropriation Accounts
Investors can monitor appropriations of publicly listed corporations by analyzing their cash flow statements (CFS). The CFS shows if a firm is generating enough cash to pay itsdebt obligations and fund itsoperating expenses.
Here’s a breakdown of how Tobacco giant Altria Group Inc. (MO), a popular income stock, appropriated its cash and profits in the nine months to Sep. 30, 2018.
:max_bytes(150000):strip_icc()/Altria-5f4efd6499f94a3b8a70b21a5923a808.png "Appropriation Account: Definition, How It Works, Example (1)")
:max_bytes(150000):strip_icc()/Altria2_001-084c5ba148f84263b94d7370b66fc2a1.png "Appropriation Account: Definition, How It Works, Example (2)")
