METHODS OF RECORDING TRANSACTIONS IN JOINT VENTURE
The Joint venture may be defined as temporary partnership between two or more persons without the use of firm’s name for a specific purpose and limited time period. In other words, two or more persons agree to undertake a particular venture and to share the profits and losses thereof in an agreed ratio. The relationship of co-venturers is governed by the partnership law of land. The various methods of recording transactions in joint venture are as follows:
METHOD 1: SEPARATE SET OF BOOKS ARE MAINTAINED
When this method this followed of maintaining the accounts of the joint venture, then following accounts are opened:
- JOINT BANK ACCOUNT
- CAPITAL ACCOUNTS OF EACH CO-VENTURER
- JOINT VENTURE ACCOUNT
- ANY OTHER ACCOUNT OF DEBTOR, CREDITOR ETC. (if required).
The journal entries passed under this method are as follows:
| FOR CAPITAL CONTRIBUTED BY CO-VENTURERS |
| Joint Bank A/c Dr. To co-venturers personal A/c |
| FOR PURCHASE OF GOODS AND ASSETS FOR JOINT VENTURE |
| For Cash Joint Venture A/c Dr. To Joint Bank A/c On Credit Joint Venture A/c Dr. To Supplier’s A/c |
| ON PAYMENT OF EXPENSES |
| Joint Venture A/c Dr. To Joint Bank A/c |
| ON SALE OF GOODS |
| For Cash Joint Bank A/c Dr. To Joint Venture A/c On Credit Customer’s A/c Dr. To Joint Venture A/c |
| FOR PROFIT ON JOINT VENTURE |
| Joint Venture A/c Dr. To Co-venturer’s personal A/c |
| FOR LOSS ON JOINT VENTURE |
| Co-Venturer’s Personal A/c Dr. To Joint Venture A/c |
| FINAL SETTLEMENT OF ACCOUNTS |
| For amount due from co-venturers Joint Bank A/c Dr. To co-venturers personal A/c For amount due to co-venturers Co-venturers personal A/c Dr. To Joint Bank A/c |
METHOD 2: JOINT VENTURE RECORDS MAINTAINED BY ONE OF THE CO-VENTURERS
Under this method, all the Joint Venture transactions are recorded by one of the co-venturers in his own books of accounts. In the books, the co-venturer is authorized to record joint venture transactions. Generally, the following accounts are opened under this method:
- JOINT VENTURE ACCOUNT : To calculate the profit or loss on the joint venture.
- PERSONAL ACCOUNT OF OTHER CO-VENTURERS: To record the joint venture transactions effected by other co-venturers and to ascertain the amount due from other co-venturer or due to another co-venturer.
The journal entries under this method are as follows:
| FOR CASH SUPPLIED BY CO-VENTURERS |
| Cash/ Bank A/c Dr. To co-venturers personal A/c |
| FOR PURCHASE OF GOODS AND ASSETS FOR JOINT VENTURE |
| For Cash Joint Venture A/c Dr. To Cash A/c For goods supplied by self Joint Venture A/c Dr. To Purchases A/c |
| ON PAYMENT OF EXPENSES |
| Payment of expenses by self Joint Venture A/c Dr. To Cash/ Bank A/c Payment of expenses by other co-venturer Joint Venture A/c Dr. To co-venturer personal A/c |
| ON SALE OF GOODS |
| For Cash Cash/ Bank A/c Dr. To Joint Venture A/c On Credit Customer’s A/c Dr. To Joint Venture A/c |
| FOR PROFIT ON JOINT VENTURE |
| Joint Venture A/c Dr. To Profit and Loss A/c To Co-venturer’s personal A/c |
| FOR LOSS ON JOINT VENTURE |
| Co-Venturer’s Personal A/c Dr. Profit and Loss A/c Dr. To Joint Venture A/c |
| FINAL SETTLEMENT OF ACCOUNTS |
| For amount due from co-venturers Cash/ Bank A/c Dr. To co-venturers personal A/c For amount due to co-venturers Co-venturers personal A/c Dr. To Cash/ Bank A/c |
METHOD 3: JOINT VENTURE RECORDS MAINTAINED BY ALL CO-VENTURERS
Under this method each venturer open a joint venture account and the personal accounts of the other co-venturers. Suppose A and B enter into a joint venture then in A’s books joint venture account and the personal account of B will be opened. Similarly, in the books of B joint venture account and the personal account of a will be opened.
The journal entries to be passed are as follows:
| EXPENDITURE IS INCURRED OR GOODS SUPPLIED BY SELF |
| Joint Venture a/c Dr. To Cash Account (for expenses) To Purchases Account (for purchases) |
| EXPENSES IS INCURRED OR GOODS SUPPLIED BY CO-VENTURER |
| Joint Venture A/c To Co-venturer Personal A/c |
| FOR UNSOLD STOCK TAKEN OVER BY SELF |
| Purchases A/c Dr. To Joint Venture A/c |
| FOR UNSOLD STOCK TAKEN OVER BY CO-VENTURERS |
| Joint Venture A/c Dr. To Co-venturer A/c |
| FOR PROFIT ON JOINT VENTURE |
| Joint Venture A/c Dr. To Profit and Loss A/c To Co-venturer’s personal A/c |
| FOR LOSS ON JOINT VENTURE |
| Co-Venturer’s Personal A/c Dr. Profit and Loss A/c Dr. To Joint Venture A/c |
METHOD 4: OWN RECORDS ARE MAINTAINED BY ALL CO-VENTURERS OR MEMORANDUM METHOD
Under this method, a co-venturer records only those transactions in which he himself entered into. Only one account is maintained under this method i.e. ‘Joint Venture with Co-Venturer Account.’
The Journal entries to be passed are as follows:
| GOODS PURCHASED FOR CASH |
| Joint Venture a/c Dr. To Cash Account |
| GOODS SUPPLIED FROM OWN STOCK Joint Venture A/c Dr. To Purchases A/c |
| EXPENSES INCURRED ON ACCOUNT OF JOINT VENTURE Joint venture A/c Dr. To Cash/ Bank A/c |
| FOR SALES MADE On Cash basis Cash/ Bank A/c Dr. To Joint Venture with…. A/c On Credit basis Joint Venture with…. A/c Dr. To Cash/ Bank A/c |
| FOR UNSOLD STOCK TAKEN OVER BY SELF |
| Purchases A/c Dr. To Joint Venture with… A/c |
| FOR PROFIT ON JOINT VENTURE |
| Joint Venture A/c Dr. To Profit and Loss A/c |
| FOR LOSS ON JOINT VENTURE |
| Profit and Loss A/c Dr. To Joint Venture A/c |