The act/ process of setting aside money for a specific use/ purpose. For example, reserves are created by setting aside a specific amount/ a percentage out of net profits. More specifically, a general reserve is formed by debiting profit and loss (P/L) and crediting the general reserve account with the same amount. Retained earnings are also created out of net profits. However, these earnings will be appropriated- i.e., allocated, for specific uses/ purposes (appropriation of retained earnings). Appropriated earnings can be assigned to multiple uses/ purposes. A prime example is the investments made with appropriated earnings for setting up of a new company or purchasing assets, repayment of debts, marketing, financing research and development, etc.
The amounts set aside are usually moved to an account known as an appropriation account.
