The transactions of each operator will be recorded as follows:

Books of Douglas Books of Effie

/. Joint Operation 1,950,000 2. Joint Operation 1,750,000
Cash 1,950,000 Cash
1,750,000
3. Cash 2,800,000
Joint Operation 2,800,000 3. Cash 2,600,000
4. Merchandise 300,000 Joint Operation 2,600,000
Joint Operation 300,000
5. Joint Operation 1,010,000
5. Joint Operation 990,000
Income from
Income from
Joint Operation 1,010,000
Joint Operation 990,000
6. Joint Operation 140,000
6. Cash 140.000
Cash 140,000
Joint Operation 140.000
Credit balances after entry no. 4 (P1,150,000 and P850,000) represent profit of P2,000,000. After
recognizing profit share in Entry 5, the balance in the joint operation account changes to either an
accountability(credit balance for Douglas P140,000) which the operator is required to turn over or a right
to recover (debit balance for Effie) which an operator has
a right to receive. The last entry (no. 6) records settlement and closes the joint operation account.
Books of Douglas: Books of Effie:
Joint Operation Joint Operation
1) 1,950,000 3) 2,800,000 2) 1,750,000 3) 2,600,000
5) 1,010,000 4) 300,000 5) 990,000
Balance 140,000 Balance 140,000

ILLUSTRATION 4. JOINT OPERATION UNDER A MANAGING OPERATOR

In this illustration, the resources of the joint operation (merchandise, cash, and receivables) are entrusted in
the hands of the managing operator who uses the following additional account titles:
Joint Operation Cash, Joint Operation Receivables, Joint Operation Properties and Joint Operation Payables
which are real accounts representing Joint assets and liabilities. These are recorded only in the books of the
managing operator who controls the operational resources and obligations.
To illustrate using the following transactions for D and R with D as the managing operator:
1. D and R formed a contractual arrangement to sell second-hand heavy duty equipment coming
from Japan. D invested cash of P500,000 and R invested second hand heavy equipment also worth
P500,000.
2. D made additional purchases on credit, P100,000.
3. Cash Sales amounted to P400,000; On credit P460,000.
4. License, store rent and advertising expenses paid amounted to P170,000.
5. Supplier of heavy equipment was paid less a discount of P2,000.
6. Collected the accounts of customers less a discount of P15,200.
7. R took back unsold merchandise worth P60,000.
8. The operation was terminated, Operating profit or loss determined and divided equally
between the operators.
9. Cash settlement was made by the managing operator.