Joint Venture Journal Entries

Joint Venture Journal Entries:

Learning Objectives:

What is accounting treatment of joint ventures?
Prepare journal entries in the books of parties doing joint venture business.

There are two methods in which joint venture accounts can be kept These are:

Where no separate books are kept to record joint venture transactions.
Where as separate set of books is kept to record the transactions.

When Separate Books Are Not Kept:

When it is not possible to maintain a separate set of books for joint venture transactions, each party will use his ordinary business books for recording such transactions. Each party will open a joint venture account and the accounts of other parties in his books. Suppose A and B enter into a joint venture. Then A will open a joint venture account and also an account of B in his books. Similarly, B will open in his books, a joint venture account and the account of A. The following journal entries are made:

1.	When goods are purchased and money is spent on joint venture by any partner:
	Joint venture account
	To Cash or seller’s account

2.	When goods are purchased by the fellow – partners and report is received from them or money is spent by them on joint venture:
	Joint venture account
	To Partner’s personal account
Thus the joint venture account in the books of one partner tallies with the same as it stands in the books of other partner:

3.	When expenses are incurred by the other party:
	Joint venture account
	To Cash account

4.	When expenses are incurred by the other party:
	Joint venture account
	To Other party’s account

5.	If any advance is received by the other party, say in the form of bill of exchange:
	Bills receivable account
	To Other party’s account

6.	If any advance is given to the other party, say in the form of promissory not:
	Other party’s account
	To Bills payable account

7.	If the bill receivable is discounted, the usual entry for discounting the bill is passed. The discount should be transferred to the joint venture account. The entry is:
	Joint venture account
	To Discount account

8.	If the bill payable was issued in favor of the other party and that party has got it discounted, the discount will have to be debited to the joint venture account, the credit will be in the other party’s account:

9.	When the goods bought on the joint venture account are old:
	Cash or purchaser’s account
	To Joint venture account

10.	When the goods are sold by the co-partners and on being informed of the sale:
	Other party’s account
	To Joint venture account

11.	When money is received on joint venture:
	Bank or cash
	To Joint venture account

12.	If money is received by the other party on account of joint venture:
	Other party’s account
	To Joint venture account

13.	If any special commission is received on account of joint venture:
	Joint venture account
	To Commission account

14.	If any commission is payable to other party:
	Joint venture account
	To Other party’s account
	(Commission may have to be paid for making sales or even for making purchase)

15.	Sometimes some goods are left unsold and one of the parties takes them. The entry is:
	Purchases account
	To Joint venture account

16.	If the goods are taken by the other party:
	Other party’s account
	To Joint venture account

17.	Now the joint venture account will show a profit or loss. The profit will be divided in the agreed proportions. The entry is:
	Joint venture account
	To Other party’s account
	To Profit and loss account
	(In case of loss the entry will be reversed.)

When Separate Books Are Kept:

Under this method a separate joint bank account is opened. The amount contributed by each partner as his share of investment is deposited into a joint bank account. accounts of the parties concerned are also opened. The system of accounting then is as follows:

The amount contributed by each partner is debited to a joint bank account and credited to the personal account of each partner.
Goods bought on joint venture as well as expenses incurred in connection with the business are debited to the joint venture account and credited to the seller’s account or the joint bank account.
When the goods are sold, the amount thereof is debited to the partner’s account or the joint bank account and credited to the joint venture account.
If the parties have taken over plant or materials etc., the value will be debited to the account of the party concerned and credited to the joint venture account.
The joint venture account will now show profit or loss which will be transferred to the personal accounts of the respective parties in their profit sharing ratio.
The joint bank account will then be closed by making payment to each partner of what is due to him in respect of his personal account.

For better understanding of these two methods of joint venture accounting please visit our joint venture accounting problems and exercises page.

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Sana Ahmed Accounting For Joint Ventures, Joint Venture Accounts 1 Comment

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Dalli Nalini April 19, 2014

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