Why do we do appropriations in equity and not expense

Many reasons, one is actually risk

Reason 1 - Risk

Consider this scenario:

1. Your client decides to run a profit and loss statement WITHOUT YOU
2. The dividend and income tax appropriation accounts are NOT separate from operating expenses, so they affect the profit formula, meaning profit is WRONG
3. Your client then makes a decision based on this profit
4. They blame you and sue you for the outcome

This is the sole reason we do appropriations in equity.

The other way to manage this risk is to create custom profit and loss reports for ALL your clients, and set them as default, and make sure they use them. This still has risk.

Equity removes this risk.

Reason 2 - Because AASB says so

One of our registered company auditors said it recently:

"With regard to AASB 101, presentation of financial statements and the statement of changes in equity (SOCE), the need for SOCE became a matter discussed by standard setters a long time ago, one item was removing the ability to have the appropriation account showing at the bottom of the Profit and Loss Statement"

Reason 3 - Integrations

If you are using another app for cash flow, forecasting, advisory, then you do not want those accounts importing into the expense sections of these solutions.

This risk is also removed.