Appropriation Account
Appropriation is the act of setting aside money for a specific purpose. For an LLC, the appropriation account will start with profits before taxes and then subtract corporate taxes and dividends to arrive at retained profits. 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. In general accounting, appropriation accounts are mainly prepared by partnerships and limited liability companies (LLCs). A company or a government appropriates funds in order to delegate cash for the necessities of its business operations.
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 and limited liability companies (LLCs). They are an extension of the profit and loss statement, showing how the profits of a firm are allocated to shareholders or to increase reserves indicated in the balance 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 at retained profits.
Government appropriation accounts come into play when they create their budgets. Appropriation credits are 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.
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 its debt obligations and fund its operating 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.
SEC company filing
https://www.sec.gov/Archives/edgar/data/764180/000076418018000095/a2018form10qq32018.htm
SEC company filing
https://www.sec.gov/Archives/edgar/data/764180/000076418018000095/a2018form10qq32018.htm
Related terms:
Accounting Entity
An accounting entity is a distinct economic unit that isolates the accounting of certain transactions from other subdivisions or accounting entities. read more
Appropriation
Appropriation is when money is budgeted for a specific, particular purpose or purposes. read more
Balance Sheet : Formula & Examples
A balance sheet is a financial statement that reports a company's assets, liabilities and shareholder equity at a specific point in time. read more
Budget : Corporate & Personal Budgets
A budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. read more
Cash Flow
Cash flow is the net amount of cash and cash equivalents being transferred into and out of a business. read more
Corporate Finance
Corporate finance is the division of finance that deals with how corporations address funding sources, capital structuring, and investment decisions. read more
Credit
Credit is a contractual agreement in which a borrower receives something of value immediately and agrees to pay for it later, usually with interest. read more
Dividend
A dividend is the distribution of some of a company's earnings to a class of its shareholders, as determined by the company's board of directors. read more
Fiscal Year (FY)
A fiscal year is a one-year period of time that a company or government uses for accounting purposes and preparation of its financial statements. read more
Income Stock
An income stock is an equity security that pays regular, often steadily increasing, dividends. read more