Classwork Exercise and Series (Financial Accounting- SS3): Joint Venture Account

Definition of joint venture

A joint venture is simply a venture undertaken jointly by two or more persons with a view to make profit.

It differs from partnership in that it is of a more temporary character. Nowadays joint ventures are often concerned with one isolated transaction,such as buying up bankrupt stocks or engaging in similar operations.

Main characteristics of joint venture

The profit sharing ratios must be clearly defined.

The capital,activities and scope of the venture must be laid down

Sometimes one venture is allowed credit for use of his office,or for services provided,this must be agreed to by all parties.

Account procedure

Each venture opens an account to record all matters which concern the particular venture. This account is called “joint venture with XYZ”(the name of the other party to the venture)

If cash is paid out: Debit joint venture account and credit cash

If cash is received from sales or even from other party: credit joint venture account and debit cash

Any charges agreed upon e.g commission debit joint venture account and credit the account of the person who is to receive the commission

At the close of the venture ,or end of the year whichever is earlier. The joint accounts of each venture are combined in a “memorandum joint venture account”on which the profit or loss on the venture is ascertained.

Note:this account does not form part of the double-entry records in any set of books been prepared purely for the purpose of ascertaining the profit or loss.

The profit having been found: debit venture account and credit profit and loss account

In the event of loss: credit joint venture and debit profit and loss account.

When all these entries have been made,the balances remaining on the various joint venture account show the indebtedness of one venture to another.

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