Joint Bank Account
27/12/2020Joint Venture Account:
This account represents the results of the business, that is, profit or loss. It is like a Trading/Profit & Loss Account of a trading concern. This account is debited by the cost of goods, expenses; goods supplied by the venturers etc. and are credited by sale proceeds, unsold stock, stock taken by venturers etc.
If credit side of this account is greater than the debit side, the difference represents profit on joint venture and vice versa in the opposite case. The profit or loss so made is transferred to co-venturer’s account.
It is like an ordinary Cash Book or Bank Account. All incomes including the capital contribution by the ventures appear on the debit side of this account whereas all expenses of the venture appear on the credit side of this account. It is finally closed by payment to the co-venturers, leaving no balance either side.
Co-Venturer’s Account:
This is the capital account of the venturer relating to venture. This account is credited by the capital contributed by the venturers, goods supplied by them from their own stock, expenses made personally by them etc. whereas this account is debited for any withdrawals or any asset taken from the venture.
The profit or loss so made on venture is transferred to this account in profit sharing ratio and this account is closed by cash payment from joint bank and vice versa in the opposite case.
| Journal Entries Under this Method | |||
| 1 | When cash contributed or invested or paid in by Co-Ventures | Joint Bank Account
To Respective co-venture Account |
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| 2 | When goods purchase for Joint Venture | Joint Venture Account
To Joint Bank Account |
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| 3 | When goods contributed by co-venture | Joint Venture Account
To Respective co-venture Account |
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| 4 | When goods purchase on credit | Joint Venture Account
To Supplier’s Account |
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| 5 | When suppliers are paid off | Supplier’s Account To Joint Bank Account |
Dr. |
| 6 | When expenses incurred | Joint Venture Account
To Joint Bank Account |
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| 7 | When expenses paid by a co-venture | Joint Venture Account
To Respective co-venture Account |
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| 8 | When goods sold for cash | Joint Bank Account
To Joint Venture Account |
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| 9 | When goods sold on credit | Debtor’s Account
To Joint Venture Account |
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| 10 | When cash received from debtors/Bills Receivable | Joint Bank Account
To Debtors/Bills Receivable A/c |
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| 11 | When Goods taken by co-venture | Respective co-venture Account
To Joint Venture Account |
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| 12 | When commission or salary payable to co-venture | Joint Venture Account To Respective co-venture Account |
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| 13 | When discount received from creditors | Creditors Account
To Joint Venture Account |
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| 14 | When discount allowed or bad debts incurred | Joint Venture Account
To Debtor’s Account |
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| 15 | When cash is paid to creditors/Bills Payable | Creditors/Bills Payable A/c
To Joint Bank Account |
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| 16 | Result of the Joint Venture
(a) Profit (b) Loss |
Joint Venture Account
To each Co-Venture’s A/c Each co-venture’s A/c To Joint Venture Account |
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Under this method, all co-venturers contribute their share of investment and deposit their shares in a Joint Bank account newly opened for the specific purpose of the Joint Venture. They may use this bank account to make any kind of payments and to deposit sale proceeds or any other kind of receipts.
In addition to Bank account, a Joint venture account is also opened in the books to keep records of all transactions routed through this account.
This category of accounts is a personal account of each co-venturer. Thus, following three accounts are opened:
- Joint Bank Account
- Joint Venture Account
- Personal account of co-venturers
When Separate Books of Accounts are not kept for the Joint Venture
It is of two types:
- When all venturers keep separate accounts
- Memorandum joint venture method
When all Venturers keep Separate Accounts:
- Separate Joint venture account and personal accounts of other co-venturers are opened under this method of accounting.
- Joint venture account is debited and bank account or creditor account is credited on the account of goods purchased or expensed.
- Joint venture account is credited and a bank account or debtor account is debited in case of either cash sale or credit sale.
- Each co-venturer debits joint venture account and credits personal accounts of other co-venturer on the account of either goods purchased or expensed by other co-venturers.
- Joint venture account is credited and personal account of others co-venturer account is debited in case of sale made by other co-venturers.
- Joint venture account is debited and commission account is credited if, commission is receivable, but if commission is receivable by other co-venturer, then the concerned co-venturer account will be credited instead of the commission account.
- If unsold stock is taken, then goods account will be debited by crediting Joint venture account. On the other hand, if unsold stock is taken by any other co-venturer, then personal account of the co-venturer will be debited.
- Balance in the joint venture accounts represents profit or loss and later that amount of profit or loss will be transferred to the personal accounts of co-venturers.
Note: Above transactions are possible only when all the co-venturers exchange information’s on regular basis.
Memorandum Joint Venture Method
Important features of memorandum method are given as hereunder:
- Only one personal account is opened by each co-venturer in his book named Joint Venture account with…………… (Name of other co-venturer). Same process will be followed by other co-venturer in his books of accounts.
- Only one personal account will be opened by each co-venturer irrespective of the fact, how many other co-venturers are exists. For example, there is a joint venture of 4 person A,B,C, & D; now, A in his books will open only one personal account named as Joint venture with B,C, & D account.
- Each party will record only those transactions in his book, which are done by him; the transactions done by other co-venturers will be ignored.
- In addition to above said personal account, a combined account named as “memorandum joint venture account” will also be opened.
- Memorandum account is merely a combined account of personal accounts opened by each co-venturer. Debit side of personal account will be transferred to the memorandum account and the credit side of personal account will be transferred to the credit side of memorandum account.
- Transactions done by co-venturers among themselves including cash received or paid by one co-venturer to other will be ignored at the time of preparation of a memorandum account.
- Balance of memorandum joint venture account will represent profit or loss of the particular business. Further, the profit or loss will be transferred to the individual co-venturer account in their profit sharing ratio.