A joint venture is an arrangement in which two or more
parties agree to pool their resources for the purpose of a
specific task or transaction. This task may be a fresh project or any other business activity. In a joint venture, each of the members is responsible for profits, losses and costs associated with it. However, the venture is an entity separate from its participants. Here, we will discuss the Joint Venture Accounting with Separate Books.
Joint Venture Accounting with Separate Books
The joint venture accounting can be done in any of the
following two ways:
1.When the separate set of books are maintained
2.When the separate set of books are not maintained
We will here deal with the situation when the separate set of books are maintained. Thus, the following accounts are made:
•Joint bank account
•Joint venture account
•Co-venturers account (1) Joint Bank Account
The co-venturers open a separate bank account for the
venture transactions. They make initial contributions to this account. The bank account is normally operated jointly. Expenses are met from this Joint Bank Account. Sales or collections from transactions are deposited into this account.
However, if any co-venturers make direct payments and
direct collections; in such a case their Personal Accounts will be credited/ debited for the transactions done. On completion of the venture, the Joint Bank Account is closed by paying the balance to co-ventures.
(2) Joint Venture Account
This account is prepared for measurement of venture
profit. This account is debited with all venture expenses and credited with all sales or collections. The excess balance of credit side over the debit side shows the profit on joint venture and vice versa. Profit /Loss are transferred to co-venturers’ accounts in the profit-sharing ratio.