What is an Appropriation Account?

An appropriation account is used by a government to store the funds allocated to an agency or project. When funds are used for the designated purpose, the amount stated in this account is reduced. If the funds stored in an appropriation account are unused as of the end of a budget period, the funds are typically reallocated elsewhere.

An appropriation account can also be used by a business, to allocate retained earnings for a specific purpose. This is done in order to make it clear that the appropriated funds are intended for a specific use, rather than being distributed to shareholders or used for some other purpose. Appropriations are commonly used for expansion projects or loan repayments, which require a substantial funding commitment.

Example of an Appropriation Account

Big Debt Corporation is $100 million in debt, and will have a difficult time repaying these funds as they come due. The company’s shareholders are clamoring for a dividend, so the board of directors decides to sequester enough funds in an appropriation account to ensure that the debt can be repaid. Any retained earnings not sequestered in this manner will then be made available to investors as dividends.