Joint Venture Account -
A Unique Nominal A/c

A joint venture is an arrangement where two or more parties pool their resources for undertaking a specific project or buisness transaction

When the size of the venture is considerably large, the co- venturers may maintain separate set of books solely for the purpose of recording Joint Venture transactions. Under this method, the following Ledgers Accounts are normally maintained.

  1. Joint Venture Account.
  2. Joint Bank Account.
  3. Co-venture's Account.
Joint Venture Account Practical Core Concepts:

The basic nature of this Account falls under Nominal Account, (Debit: All Expenses and Losses and Credit: All Incomes and Gains).

The Joint Venture Account is very unique one and is in fact the Trading and Profit and Loss Account of the Venture where all direct and indirect expenses and incomes are recorded.

All direct and indirect expenses are debited to this account and direct and indirect incomes are credited to this account.

The balance of Joint Venture Account will show either profit or Loss. If the Joint Venture Account shows credit balance, it means profit and if it shows debit balance, it is loss. The amount of profit or loss is transferred to Co-Ventures Capital Account in proportion agreed upon (if not stated clearly).

Joint Bank Account:

Joint Bank Account is opened with the contribution made by the Co-Venturers. On opening Joint Bank Account, the contributions of the Co-Venturers are debited to this Account and Co-Venturers' Capital Account is credited.

Any incomes earned (direct or indirect) are added or debited to this Account and any expenses incurred are deducted or credited from this Account. It is just like a cash book. It records all the cash and bank transactions.

The Joint Bank Account is closed by transferring balance to the Capital Account of Co-ventures.

Co-venturers' Account:

Similar to the Capital Accounts in partnership firm, Co-Venturers' Account is opened in a Joint Venture.

Co-Venturers' Account is credited with the investment made by each Co-Venturer and is debited with the drawings (if any) made by them. If the Joint Venture earns profit, Co-venturers A/c Capital Account is credited. While if the Joint Venture suffers loss, Co-venturers' Capital Account is debited.

Co-venturers' Capital Account is closed by making cash payment from Joint Bank Account.

Where Seperate Set Of Books Are Not Maintained:

Where it is not possible to maintain a separate set of books for the Joint Venture, each Co-Venturer records all transactions related to the Joint Venture in his books. Here two methods may be adopted:

1. First Method:

According to the first method, the Joint Venture Account prepared by each Co-Venturer records all the expenses and incomes. All expenses are debited to this account and all incomes are credited to it.

Any kinds of advances made by one venturer to another are debited to the Joint Venture Account and credited in the Joint Bank Account. And in the books of the recipient, Joint Bank Account is debited and Joint Venture Account is credited.

On completion of the Venture, the Co-Venturer exchanges their respective statement reflecting the transaction made by each one of them on joint account.

A Memorandum Joint Venture Account is prepared to ascertain the amount of profit or loss earned or suffered by the Venture considering his own as well as the transaction of the Co-Venturers.

If the venture earns profit, Joint Venture Account is debited and Profit and Loss Account is credited and if the Venture suffers loss then Joint Venture Account is credited and Profit and Loss Account is debited.

The balance of the Joint Venture Account shows the amount due to or due from the Co-Venturer.

After passing entry of the adjusting payment, the separate Joint Venture Accounts prepared are closed.

2. Second Method:

Under this method, Each co-venture will open two principal accounts:

1. Joint Venture Account and

2. Personal Account of the Co-Venturer

Joint Venture Account:

It resembles a Trading and Profit and Loss Account with the basic nature of a Nominal Account. Here all direct and indirect expenses are debited and all direct and indirect incomes are credited.

This account is prepared to ascertain the profit or loss on joint venture. The final balance of joint venture account shows profit or loss which is transferred to co-ventures' account according to their profit sharing ratio.

Personal Account Of Co-Venture:

The Personal Account of Co-Venture's is debited with goods and sales proceeds taken over, remittance share of profit. Similarly, the personal account is credited with cash, goods supplied by the co-ventures.

On completion of the venture, each venturer exchanges their respective statement of transactions likewise in the first method. Each venturer than passes necessary entries to bring into his account the transactions undertaking by the other venturers. As a result,, each venturers' account give a complete record of the whole venture.

The balance of Joint Venture Account shows either profit or loss. Each venturer transfers his own share of profit or loss to the Profit and Loss Account. The balance of personal account of the other venturer shows the amount due to or from him. On payment of such balances, the separate personal accounts are closed.

I When Separate Books Are Maintained By Co-Venturer:

Under this system normally two accounts are maintained:

  1. Joint Venture Account and
  2. Personal Account of the Co-Venturer

All transactions made by self and the other Co-Venturer will be recorded.

1. When Goods Are Brought In By Self Into Joint Venture:

Joint Venture A/c ----------------------Dr.

           To Cash/Debtors A/c

(Being cash or goods invested into Joint Venture)

2. When Goods Are Supplied In By Self From Personal Stock:

Joint Venture A/c ----------------------Dr.

           To Purchase A/c

(Being goods brought into Joint Venture)

3. For Recording of Investment (Cash or Goods)by the Co-venturer into Joint Venture:

Cash A/c (For cash investment)---------Dr.

Goods A/c (for goods brought in)-----------------Dr.

           To Co-venturer A/c

(Being investment made by Co-venturer)

4. For Recording Sale In Joint Venture:

Cash A/c ---------------Dr.

           To Joint Venture A/c

(Being cash sales made)

5. For Recording Of Goods Sold By Co-Venturer:

Co-Venturer A/c --------------Dr.

           To Joint Venture A/c

(Being goods sold by the Co-Venturer)

6. When Expenses Are Paid By Self:

Joint Venture A/c --------------Dr.

           To Cash or Bank A/c

(Being expenses incurred into joint venture)

7. When Expenses Are Paid By Co-Venturer:

Joint Venture A/c ---------------Dr.

           To Co-Venturer A/c

(Being expenses incurred into joint venture by the Co-Venturer)

8. For Receipt Of Advance From Co-Venturer:

Cash/Bills Receivable A/c -------------Dr.

           To Co-Venturer A/c

(Being cash/bill receivable received as advance from Co-Venturer)

9. For Discounting The Bill Of Exchange

Bank A/c ------------------Dr.

Discount A/c --------------Dr.

           To Bills Receivable A/c

(Being bill discounted with the bank)

.

10. For Transferring Of Discount:

Joint Venture A/c --------------Dr.

           To Discount A/c

(Being the amount of discounting charge transferred to Joint Venture Account)

11. When Bills Payable Is Accepted By Co-Venturer:

Co-Venturer A/c ----------------Dr.

           To Bills Payable A/c

(Being acceptance given)

12. When Bills Payable Is Discounted By Co-Venturer (For Discount Charge Only):

Joint Venture A/c --------------Dr.

           To Co-Venturer A/c

(Being amount of discount debited to Joint-Venture Account)

13. When Commission Is Charged By Self Under Joint Venture:

Joint Venture A/c ----------------------Dr.

            To commission A/c

(Being the amount of commission charged to Joint-Venture Account)

14. When Commission Is Charged By Co-Venturer Under Joint Venture:

Joint Venture A/c -----------------Dr.

           To Co-Venturer A/c

(Being the amount of commission charged by the Co-Venturer charged to Joint Venture Account)

15. When unsold Stock/Goods Are Taken Away By Self:

Purchase A/c ---------------Dr.

            To Joint Venture A/c

(Being the unsold goods taken)

16. When unsold Stock/Goods Are Taken Away By Co-Venturer:

Co-Venturer's A/c -------------Dr.

           To Joint Venture A/c

(Being the unsold goods by Co-Venturer )

17. For Sharing Of Profit On Joint-Venture:

Joint Venture A/c ----------------Dr.

           To Profit & Loss A/c (for own share)

           To Co-Venturers A/c (for share of Co-Venturer)

(Being the profit on Joint Venture shared)

18. For Sharing Of Loss On Joint-Venture:

Profit & Loss A/c --------------Dr.

Co-Venturers A/c ---------------Dr.

           To Joint Venture A/c

(Being the loss on Joint Venture shared)

19. For Settlement of Personal Accounts:

(i) If The Personal Account Of The Co-Venturer Shows A Debit Balance:

Cash/Bank A/c ----------------Dr.

           To Co-Venturer's A/c

(Being the amount receivable from co-venturer received)

(ii) If The Personal Account Of The Co-Venturer Shows A Credit Balance:

Co-Venturer's A/c --------------Dr.

           To Cash/Bank A/c

(Being the amount payable to co-venturer paid)

II Memorandum Joint Venture Account Method:

         Under Memorandum Joint Venture Account Method each co-venturer will open in his Joint Venture Account (usually named, Joint Venture With … Account) and record only those transactions relating to the joint venture which are directly concerned with him and not those of others. This is treated as a personal account in which each venturer records only such transactions as he undertakes.

The following entries will be made in this account :

1. Joint Venture with........Account-----Dr.

           To Cash/Bank/Creditors A/c

(Being payments by cheque or cash or liabilities incurred on Joint Venture)

2. Cash/Debtors A/c ---------Dr.

           To Joint Venture A/c

(Being sale Cash/Credit made on account of Joint Venture)

         Each Co-Venturer then preparaes a Memorandum Joint Venture Account inorder to ascertain the amount of profit or loss in Joint Venture. The account resembles a profit and loss account wherein all the expenses and losses are debited and all incomes and gains are credited .But it does not form part of the double entry books.

         The balance of Joint Venture Memorandum Account shows profits or loss on joint venture and each party makes an entry for his share of profits or losses. The journal entry is as under :

Joint Venture with........Account --------Dr.

            To Profit and Loss A/c

(Being profit earned on Joint Ventures)

Or

Profit and Loss A/c ----------Dr.

           To Joint Venture with........Account

(Being loss effected on Joint Venture)

III Separate Books:

The Co-Venturer may record all transactions in a separate set of books. The Co-venturer first contributes to a common bank account and then all payments are made through it. Accounts of parties are also opened. Profit or Loss on Joint Venture is transferred to the respective partner's accounts in due ratios. Finally, the books are closed with the close of the venture.

Three main accounts opened under separate set of accounts are:

  1. Joint Venture Account
  2. Joint Bank Account, and
  3. Personal Capital Accounts of Joint Venturers.

Under this system, the following journal entries will be passed:

1. When Cash Is Invested By Co-Venturer:

Joint Bank A/c --------------Dr.

           To Co-Venturers A/c

.

(Being cash invested by Co-Venturers and deposited into the Joint Bank A/c

2. When Purchases Are Made Out Of Joint Venture Out Of Bank A/c:

Joint Venture A/c --------------Dr.

           To Joint Bank A/c

(Being goods purchased for Joint Venture and payment made from Joint Bank A/c

3. When Goods are contributed by Co-venturer:

Joint Venture A/c --------------Dr.

           To Co-Venturers A/c

.

(Being goods contributed by Co-Venturer)

4. When Goods are Purchased On Credit:

Joint Venture A/c --------------Dr.

           To Suppliers A/c

.

(Being goods purchased on credit)

5. When Suppliers Are Paid Off:

Suppliers A/c --------------Dr.

           To Joint Bank A/c

.

(Being payment made to suppliers)

6. When Expenses Are Incurred For Joint Venture Out Of Bank A/c :

Joint Venture A/c --------------Dr.

           To Joint Bank A/c

(Being expenses incurred for Joint Venture and payment made from Joint Bank A/c )

7. For Credit Sales:

Debtors A/c--------------Dr.

           To Joint Venture A/c

(Being goods sold on credit)

8. When Cash Received From Debtors/Bills Receivable:

Joint Bank A/c--------------Dr.

           To Debtors/Bills Receivable A/c

(Being cash received from debtors/ Bills Receivable No. -------)

9. On Execution Cash Sales:

Joint Bank A/c --------------Dr.

           To Sales A/c

(Being sales made and receipts from sales deposited into Joint Bank A/c

10. When Unsold Goods And Are Taken Away At Some Agree Rate By Joint Venturers

Co- Venturer's Capital A/c--------------Dr.

           To Joint Venture A/c

(Being unsold stock taken away by Co-Venturer)

11. Treatment Of Profit Or Loss On Joint Venture Account:

         If however it is desired to make interim settlement until all goods are sold, the value of unsold stock may be taken as closing stock to be brought down to the next period as opening stock.

The balance of Joint Venture Account will now represent either profit loss which will be transferred to Co-Venturer's Account at some agreed ratio or equally as mutually agreed upon.

In case of Profit:

Joint Venture A/c --------------Dr.

         To Profit & Loss A/c

(Being profit earned on Joint Venturers)

In case of Loss;

Profit or Loss A/c--------------Dr.

           To Joint Venture A/c

(Being loss suffered on Joint Venture)

         The balance of Joint Venture Account will now reflect the amount due to the Co-Venturer or the reverse

(due from the Co-Venturer)

.

With the entry for making adjusting payment, the Joint Venture Account can now be closed.