Joint Venture Accounting with No Separate Books are Maintained

Joint Venture Accounting

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:

  • Joint bank account

  • Joint venture account

  • 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).

FAQs (Frequently Asked Questions)

1. What is a Joint Venture Agreement Term?

Ans. A joint venture abbreviated as JV is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. In a joint venture or JV, the participants are responsible for the profits, losses, and the costs which are associated with it.

The following is included in the Joint Venture Agreement:

  • The location of the Business.

  • The joint venture types.

  • Venture details, such as the name of the venture, address of the venture, purpose of the venture, etc.

  • The starting and the ending date of the joint venture.

  • Venture members and their respective capital contributions.

  • Duties and obligations of the members.

  • Meeting and voting details of the members.

2. What is the Difference Between the JV and a Partnership Business?

Ans. A JV is generally formed to perform a specific function. After the completion of the function the JV business comes to an end. JV is the business venture which is formed with the particulars of working of the partners themselves. Their contract gets terminated after they accomplish their specific goal. 

Unlike this, the Partnership businesses are formed without any distinct purpose. The business is formed for a lifetime commitment to work together.

3. What is Meant by Profit Sharing Ratio?

Ans. The ratio in which the profits or the losses of a business are shared among the partners. In a partnership, the profit-sharing ratios is directed in the partnership agreement. The PSR is usually given as a percentage of the total profits, that is to be distributed to each partner.