Joint venture accounting is necessary when two or more businesses carry out a business venture in a group under a joint venture agreement term. Joint Venture is quite similar in terms of nature to a partnership, except with a difference in between them.
Here the matter of concern is about the nature of the joint venture accounting, which depends on whether or not a separate legal entity is formed to undertake the venture. In case of a separate legal entity, the bookkeeping, accounts and other records of the entity are maintained in a usual manner with each party reporting their own share of the profit and losses.
Joint Venture Accounting with Separate Books
The accounting for Joint Venture can be done in any of the following two ways:
At the time when separate sets of books are maintained.
At the time when separate sets of books are not maintained.
Here in this section, we will talk about the separate set of books which are to be maintained. Following are the accounts that are to be made:
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Joint bank account
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Joint venture account
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Co-venturers account
1. Joint Bank Account
The partners in the venture, open a separate bank account for the financial transactions done in the JV. The partners make initial contributions in this account. This bank account is operated jointly. Expenses of the JV are met from this Joint Bank Account. The sales or the collections from the transactions are then deposited into this account.
2. Joint Venture Account
This account is made for measuring the venture profit. This account is debited with all the venture expenses and credited with all the sales or with the collections from sales proceeds. The excess balance from the credit side over the debit side shows the profit on the joint venture and the vice versa. Profit /Loss are transferred to the partner’s accounts in their profit-sharing ratio
3. Co-venturers Accounts
The personal accounts of the venturers or the partners to the venture are maintained to keep a record of their contributions of cash or goods. The expenditure directly is paid and the payments are directly received by co-venturers and then recorded in this account.
Journal Entries when the Separate Set of Books are maintained
1. Contribution Made by the Partners or the Co-Venturers
Joint Bank A/C……. Dr
To Co-Ventures A/C
(Capital contribution being made)
2. Expenses Being Paid out of the Joint Bank A/C
Joint Venture A/C……. Dr
To Joint Bank A/C
(Expenses being incurred)
3. Expenses Being Paid or Goods Brought in by the Partners
Joint Venture A/C……. Dr
To Co-Venturer’s A/C
(Goods bought in)
4. Entry for Goods Lost
No Entry required.
5. Insurance Claim Received
Joint Bank A/C………. Dr
To Joint Venture A/C
(Insurance claim is received)
6. Sale of Goods or Receipt of the Contract Price
Joint Bank A/C……… Dr
To Joint Venture A/C
(Goods are being sold)
7. Depreciation on Joint Assets
No Entry
8. Unsold Goods Entry or the Unutilized Assets Taken Over by the Partners
Co-ventures A/C……. Dr
To Joint Venture A/C
(Goods taken over by the co-ventures)
9. Profit on Joint Venture
Joint Venture A/C ……. Dr
To Co-Ventures A/C
(Profit being transferred)
10. For the Final Settlement
Co-ventures A/C…… Dr
To Joint Bank A/C
(Amount being paid)
11. Loss Incurred on Joint Venture
Co-ventures A/C……. Dr
To Joint Venture A/C
(Loss being transferred)
13. Payment Made to the Creditors
Creditors A/C ………. Dr
To Joint Bank A/C
(Payment being made to the creditors)
14. Payment Received From the Debtors
Joint Bank A/C ………. Dr
To Debtor’s A/C
(Payment received from debtors).