Professional Documents
Culture Documents
A joint venture is used when two or more businesses want to carry out a business
venture together under a joint venture agreement. It is similar in nature to a
partnership except that the businesses form the joint venture for a specific business
transaction, and once that transaction is completed the joint venture ends.
The nature of the joint venture accounting depends on whether or not a separate legal
entity is formed to undertake the joint venture.
In the event that a separate legal entity is formed the operation is referred to as a
jointly controlled operation, and bookkeeping and accounts of the entity are
maintained in the usual manner with each party reporting their share of the operation
using the equity method.
Transaction Postings
Both business will record their own transactions in their accounting records, in each
case the other side of the double entry bookkeeping posting will go to a joint venture
control account.
To reflect its transactions, Business A makes the following postings:
Account Debit Credit
Purchases 3,200
Wages 4,000
Joint Venture Account (Business B) 7,200
Total 7,200 7,200
Business A joint venture accounting journal entry
The effect of the entries is to transfer the expenses relating to the materials and the
wages to the joint venture control account.
Likewise Business B makes the following postings to reflect its own transactions:
Revenue 26,000
Purchases Business A 3,200
Wages Business A 4,000
Gross margin 18,800
Selling expenses Business B 2,400
Wages Business B 5,000
Operating expenses 7,400
Net income 11,400
Joint Venture Memorandum Income Statement
From the joint venture memorandum income statement, we can see that the profit of
the joint venture is 11,400, Business A will receives 60% (6,840) and Business B will
receive 40% (4,560).
Materials 3,200
Wages 4,000
Share of profit 6,840
Subtotal 14,040
Cash due from Business B -14,040
Balance Nil
Business A joint venture control account summary
Before settlement Business A has a debit balance of 14,040 which represents money
due from Business B. When Business B settles this amount, Business A will make the
following entry to clear the joint venture account and complete its own joint venture
accounting.
Account Debit Credit
Joint Venture Account (Business B) 14,040
Cash 14,040
Total 14,040 14,040
Business A Cash received to clear the joint venture account
Likewise for Business B, the joint venture control account is reconciled as follows:
(Goods sent to B)
To B 4,000
(Goods supplied by B)
To To B 300
B 12,000
To B 600
To B 340
To B 6,760
By
B
To Cash Sal
Goods 5,000 es 12,000
To Cash
Expense
s 400
To B
Goods 4,000
To B
Expense
s 300
To B
Commis
sion 600
To B
Share
of profit 340
To Profit
and loss
account 1,360
12,000 12,000
B Account
Debit Side Credit Side
To
Joint
vent
ure By Joint
acco venture
unt 12,000 Goods 4,000
By Joint
venture
Expens
es 300
By Joint
venture
Commis
sion 600
By Joint
venture
Profit 340
By Cash 6,760
12,000 12,000
BOOKS OF B
Journal Entries
joint venture account 4,000
To A 5,000
(Goods supplied by A)
Joint venture account 400
To A 400
A 6,760
By
Cash
acco
unt
To Cash Sale
Goods 4,000 s 12,000
To Cash
Expens
es 300
To A
Goods 5,000
To A
Expens
es 400
To
Commis
sion 600
To A
Share
of profit 1,360
To
Profit
and loss
account 340
12,000 12,000
A Account
Debit Side Credit Side
By
To Joint
5,000
Cash 6,760 ventu
acco re
unt accou
nt
By
Joint
ventu
re
Expe
nse 400
By
Joint
ventu
re
profit 1,360
6,760 6,760
$ $
By
Tah
ir &
Co.
-
sale
s
pro
cee
To cash cost of goods 7,500 ds 12,500
Doc
k,
dues
&
storag
e 300
Sal
es
expen
ses 250
Co
mmiss
ion 625
1,175
12,500 12,500
To
Joi
nt
ve
ntu
re
12500 By Bill receivable account 3,000
a/c
sal
es
1
Doc
k&
Storag
e 300
Sal
es
expen
ses 250
Co
mmiss
ion 625
1,175
12,500 12,500
TAHIR & CO. BOOKS
Joint Venture Account
Debit Side Credit Side
$ $
By
Cas
h
sale
s
pro
To Salim & Co. cost of cee
goods 7,500 ds 12,500
To Cash.
Doc
k,
due
s&
stor
age 300
S
ales
exp
ens
es 250
1,175
Commission 625
12,500 12,500
$ $
By
To Joint
Bills ventu
paya re
ble accou
a/c 3,000 nt 7,500
By
To Joint
Cash ventu
re
sight accou
draft 7,266.67 nt 550
By
Disco
unt
accou
nt 100
By
Joint
ventu
re
accou
nt
2/3 2,116.67
10,266.67 10,266.67