Understanding Appropriation Accounts
Appropriation is the act of setting aside money for a specific purpose. In accounting, it reveals how a firm’s profits are divided up, whereas in government, it details funds allocated to specific departments. Companies and governments appropriate funds to ensure smooth operations and meet various financial needs.
How Appropriation Accounts Work
Business Context
In the realm of accounting, appropriation accounts are primarily used by partnerships and limited liability companies (LLCs). These accounts extend from the profit and loss statements, showing the allocation of profits to shareholders or for increasing reserves. Companies might appropriate money for numerous purposes such as employee salaries, research and development, and dividends.
For partnerships, the key focus is on how profits are distributed among partners. In the case of LLCs, the appropriation account begins with profits before taxes, then subtracts corporate taxes and dividends, eventually arriving at retained profits.
Government Context
In government, appropriation accounts are pivotal during budget creation. Appropriation credits, derived from estimated revenues like taxes and trade, are allocated to appropriate agencies. Any unused credits may be reallocated or shifted for other purposes.
For instance, the U.S. federal government’s appropriations are determined by Congress through various committees. The fiscal year for the federal government runs from October 1 through September 30 each year.
Key Takeaways
- Appropriation accounts detail how companies and governments distribute their funds.
- These accounts allow the delegation of cash for essential operations in both sectors.
- In business, appropriation accounts are mostly prepared by partnerships and LLCs.
- Government appropriation accounts are vital during budget formulation, allocating taxes and trade revenue to appropriate agencies.
A Real-World Example of Appropriation Accounts
Investors can monitor appropriations of publicly listed corporations by analyzing their cash flow statements (CFS). The CFS highlights if a firm generates enough cash to meet debt obligations and operational expenses.
Specific Example: Altria Group Inc.
Let’s take a look at Tobacco giant Altria Group Inc. and how the company appropriated its cash and profits in the nine months leading up to September 30, 2018.
In these detailed SEC filings, Altria allocated funds meticulously to ensure it met all financial commitments while balancing shareholder interests.
Learn more in the SEC company filing: Altria Group Inc.
Related Terms: profit and loss statement, fiscal year, retained earnings, cash flow statement.
