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Right of Appropriation

DEFINITION

 The Right of Appropriation basically states that a party has the right to choose the way his or her money is spent. A simple example of this would be having a bank overdraft and exercising the right to tell the bank how to use incoming funds explicitly, i.e. whether to pay down the debt or have the money placed into the account. This right applies to various agents and agencies in a plethora of situations, including governments, LLCs, partnerships, and various firms.

EXPLANATION

The term ‘appropriation’ denotes the act of setting funds towards a specific purpose. Companies and administrations will put financial reserves aside for the expense of operations, like research and development, salaries, dividends, and other uses. This is also known as capital allocation when referenced in a business context. Appropriation can also refer to claiming land or intellectual property. On an individual level, a person has the right to send written instruction to their bank as to how to handle their funds.

Business Appropriation

How a company handles appropriating financing is a window into how the company manages money and will show whether the company uses money to develop shareholder value or whether it wastes funds frivolously and will potentially lead to the reduction or even destruction of shareholder value. That said, if corporate spending slows down overall, that can be indicative of declining prospects for that company’s growth.

Governmental Appropriations

The United States government sets their federal allocation schedule from Sept. 30th through October 1st of every year. Bills for appropriation are set for the fiscal year after the President submits a budgetary proposal to Congress. Budget committees on in the House and Senate have budget committees vote to determine how discretionary portions of the budget will be spent on specific departments, programs and government agencies. Some programs are considered to be mandatory expenditures, like Medicare and Social Security, and receive funding through an automatic process rather than a vote-based appropriation process.

Supplemental appropriations bills get passed when there is a special need for funding, like in the case of natural disaster or other types of emergencies.

Appropriation Accounts

Appropriation accounts will show how a firm’s or government’s funding is divided up. In accounting, an appropriation account will act as an extension of a profit and loss statement. It will show how the profits of resources of a firm are allocated to reserves, dividends or shareholders. Generally, appropriation accounts are prepared by Limited Liability Companies, or LLCs, and partnerships. For an LLC, the appropriation account is calculated by counting subtract dividends and corporate taxes from gross profit to get to the final amount. An appropriation account shows how money is distributed among partners within a partnership.

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