Memorandum Joint Venture

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Memorandum joint venture account is a type of venture to determine the profit or loss of a joint venture. The co-ventures are paying their expenses which are debited from their Account and profit made by the co-ventures is credited in the respective co-ventures name. The memorandum of joint venture account is an agreement when two or more parties who are called co-ventures join together to execute a business for a limited period of time. A Joint venture memorandum account is managed jointly by all the parties to the joint venture. The profits and losses earned in this agreement are shared as per the specified ratio.

How to Maintain Memorandum Joint Venture

Step 1 - In this case, the Co-venturers can maintain the records separately, and there are different books of accounts for the joint venture. This can be done in the following two ways:

  1. Put the records of all the transactions

  2. Put the records of own Co-ventures transactions. 

So, the co-venturers keep the record of their transactions only, so we make the Memorandum Joint Venture Account. 

In this case, each co-venturer of the joint Account records only his own transactions.

Joint Venture Memorandum Account

Each co-venture opens a ‘Joint Venture’ with their AccountAccount. Each of them then debits all the income, losses, profits, and expenses from the joint venture to this AccountAccount. However, we cannot estimate the profit or loss from the venture from this AccountAccount. We prepare ‘Memorandum Joint Venture A/c’ for estimating the profit or loss of the Joint venture. 

Each co-venturer sends a regular statement of their transactions as per the joint venture to the other co-venturers involved in the joint venture.

This final statement helps in the preparation of the Memorandum Joint Venture A/c. We call it a memorandum Account because this Account is not a part of the double-entry system. 

Sample Memorandum of Understanding for Joint Venture

Suppose there are two Co-venturer, A and B. 

1. A Co-venturer will open his account in his book, and it will be titled: Joint Venture with A Account, which is a personal account. It does not show the profit or loss on Joint Venture. A Co-venturer debits the Account with his expense and credits the Account when he receives incomes. 

2. In this case, only A records only his transactions. No account can be incurred etc. by the other co-venturer B.

Journal entries made in the books of one party, say, Mr A and the other Co-Venturer Mr B.

The above is a personal account. It does not display any profit or loss of the Joint Venture. To get the profit or loss of Joint Venture, we have to prepare a Memorandum Joint Venture Account. To prepare a Memorandum Joint Venture Account, one co-venturer A will have to send another co-venturer B a copy of the Account kept by him.

Based on the copy of Account and his own Account, Memorandum Joint Venture is prepared. In short, the Memorandum Joint Venture Account is just a collection of Joint Venture Accounts prepared by all the co-venturers.

FAQ (Frequently Asked Questions)

1. Define Memorandum Joint Venture Account?

Ans: When the expenses paid by each co-ventures of the joint venture are debited, and sales made by each co-ventures are credited in their respective names. This is not made under double-entry principles of accounts. Hence, it is made to find out the profit or loss of a joint venture.