Definition
Appropriation in finance refers to the allocation of funds to particular departments, projects, or aspects within a business, organization, or government. It’s a budgetary process that officially sets aside or “appropriates” funds for specific costs or expenditures. This term can also be used in the context of earnings, where company profits may be appropriated to reinvestment or paying dividends.
Phonetic
The phonetics of the word “Appropriation” is: /əˌprəʊpriˈeɪʃn/
Key Takeaways
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- Appropriation refers to the use of pre-existing elements within a new work. This can be from culture, art, or any other context. The use of these elements is often done without the permission of the original creators.
- It can be seen as a form of cultural borrowing or exchange, but it can also be viewed negatively as theft or cultural misappropriation, especially when the appropriated culture is disempowered and unable to control how its elements are used or interpreted.
- The concept of Appropriation is widely used in the arts, where artists might use existing materials or draw from existing artistic works in the creation of something new. It can be a form of commentary, critique, or homage. While some argue this can be an important form of creative expression, others argue that it can infringe on intellectual property rights.
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Importance
In the world of business and finance, the term “appropriation” carries significant importance as it refers to the deliberate allocation of capital resources in a financial manner towards specific activity or expense. This is crucial as it enables businesses to adequately allocate resources for various activities such as funding projects, paying dividends, or reinvesting in the business. It contributes to effective financial planning and budgeting, ensuring that expenses are covered, potential investments are pursued, and stakeholders are satisfied. Therefore, efficient appropriation aids in maintaining fiscal discipline, supporting financial stability, and facilitating strategic development for an enterprise.
Explanation
Appropriation in finance/business context is essentially a legal authorization granted by a governing body, often government, to allocate specific amounts of public funds for certain purposes. Its overarching purpose is to maintain financial control and infusion of accountability within various administrative and governmental organizations, thereby preventing any unauthorized or frivolous spending of public money. By setting an appropriation, the government or administrators can set specific funds for different departments, projects, or programs as needed.Appropriations are widely used in government spending and budgeting. For example, the U.S. Congress appropriates funds for federal agencies, specifying how much money can be spent on particular initiatives or programs. This ensures that public funds are utilized in a manner that aligns with strategic objectives and policy goals. On a corporate scale, companies may also use appropriations to allot a certain portion of profits for reinvestment, loan repayment, or other defined purposes as part of their financial management strategy. In this way, appropriations serve as a key financial management tool that helps in proper allocation and control of funds.
Examples
1. Governmental Budget Appropriation: This is one of the most common examples of appropriations, particularly within the public sector. When a government prepares its budget, it appropriates specific amounts of taxpayer funds for different purposes, such as healthcare, defense, or education. For instance, the U.S. Congress appropriates billions of dollars each year for the Department of Defense to cover its operations, equipment, and personnel costs.2. Corporate Appropriation: Within corporations, appropriations are often made for specific costs such as research and development, marketing, or staff salaries. For example, a pharmaceutical company might appropriate a substantial portion of its budget to the research and development of new drugs.3. Nonprofit Organization: In a nonprofit setting, the board may appropriate funds for specific purposes like community outreach programs or upgrading infrastructure. For example, a charitable organization receiving an endowment might appropriate the funds into different areas like program development, overhead costs, outreach efforts, and emergency funds.
Frequently Asked Questions(FAQ)
What is appropriation in finance and business?
Appropriation refers to the allocation of specific amounts of money to particular departments, activities, or projects in a company or government body. In terms of a business, it often refers to a portion of profit that is legally separated for a specific purpose.
How does appropriation work in a government context?
In a governmental context, an appropriation is the authorization granted by a legislative body to supply funds for a particular use or purpose. It typically goes through a budgeting process where the government decides where to allocate the finances.
What is the significance of appropriation in a company?
For businesses, appropriation is crucial as it involves setting aside funds from the profit for specific purposes such as reinvestment in the business, paying off debt or dividends to shareholders. It aids in better financial management and control.
How is an appropriation recorded in financial statements?
Appropriation is usually recorded under the equity section of a company’s balance sheet. The retained earnings statement also reflects the appropriations showing a deduction from the unappropriated retained earnings.
What happens if an organization goes over their appropriated funds?
If an organization exceeds their appropriated funds, they may need to get approval for additional funding, reduce expenses or potentially face legal consequences, depending on the regulations governing those funds.
What does an Appropriation Bill mean?
An Appropriation Bill, also known as supply bill or spending bill, is a proposed law that authorizes the government to spend money. It is legislation that allows the government to withdraw funds from the country’s consolidated fund to meet its expected expenses.
Can the appropriation of funds be changed after approval?
Typically, alterations to approved appropriations require subsequent approval from the legislative body or governing body of an organization.
What does unappropriated profit mean?
Unappropriated profit is the portion of a company’s profit which has not been reserved for a specific purpose or distributed as dividends. It is generally available for reinvestment into business operations or for distributing future dividends.
Related Finance Terms
- Capital Expenditure
- Budget Allocation
- Fiscal Policy
- Revenue Estimation
- Financial Legislation
Sources for More Information
