Recording of Joint Venture Transactions (Both Journal and Ledger)

Joint Venture is a business arrangement where two or more parties collaborate for a specific business project, sharing profits and losses in a pre-determined ratio. Recording joint venture transactions involves accurate bookkeeping to reflect the financial dealings of the joint venture. The accounting process can vary based on whether a separate set of books is maintained or if each co-venturer records transactions individually.

This explanation focuses on both journal entries and ledger postings, along with a detailed example.

Methods of Maintaining Joint Venture Accounts

  1. When Separate Books Are Maintained
    A separate set of books is maintained for the venture, which includes:

    • Joint Bank Account: All cash transactions are recorded here.
    • Joint Venture Account: Tracks expenses, revenues, and the resulting profit or loss.
    • Co-Venturers’ Accounts: Individual accounts for each co-venturer, recording their contributions and share of profit or loss.
  2. When No Separate Books Are Maintained
    Each co-venturer records only their share of transactions in their books.

Journal Entries for Joint Venture

Common Journal Entries

S. No. Transaction Journal Entry
1 When cash is contributed by co-venturers Joint Bank Account Dr. To Co-Venturer’s Account
2 When expenses are incurred Joint Venture Account Dr. To Joint Bank Account
3 When revenue is earned Joint Bank Account Dr. To Joint Venture Account
4 When profit is distributed Joint Venture Account Dr. To Co-Venturers’ Accounts
5 When co-venturers withdraw cash Co-Venturer’s Account Dr. To Joint Bank Account

Example

A and B enter into a joint venture to undertake a construction project. They agree to share profits and losses equally. Below are the transactions during the venture:

  1. Initial Contribution:
    • A contributes ₹1,00,000, and B contributes ₹1,00,000.
  2. Expenses:
    • Materials purchased for ₹1,20,000.
    • Wages paid for ₹40,000.
  3. Revenue:
    • Revenue from the project amounts to ₹2,50,000.
  4. Profit Sharing:
    • The profit is to be shared equally.
  5. Withdrawals:
    • A withdraws ₹50,000, and B withdraws ₹50,000.

Solution

Step 1: Calculate the profit.

Revenue = ₹2,50,000

Expenses = ₹1,20,000 (materials) + ₹40,000 (wages) = ₹1,60,000

Profit = ₹2,50,000 – ₹1,60,000 = ₹90,000

Each co-venturer’s share of profit = ₹90,000 ÷ 2 = ₹45,000

Journal Entries

Date Particulars Debit (₹) Credit (₹)
Jan 1 Joint Bank Account Dr. 2,00,000
To A’s Account 1,00,000
To B’s Account 1,00,000
Jan 5 Joint Venture Account Dr. 1,20,000
To Joint Bank Account 1,20,000
Jan 10 Joint Venture Account Dr. 40,000
To Joint Bank Account 40,000
Jan 15 Joint Bank Account Dr. 2,50,000
To Joint Venture Account 2,50,000
Jan 31 Joint Venture Account Dr. 90,000
To A’s Account 45,000
To B’s Account 45,000
Feb 5 A’s Account Dr. 50,000
To Joint Bank Account 50,000
Feb 10 B’s Account Dr. 50,000
To Joint Bank Account 50,000

Ledger Accounts

1. Joint Bank Account

Date Particulars Debit () Credit () Balance (₹)
Jan 1 A’s Contribution 1,00,000 1,00,000
B’s Contribution 1,00,000 2,00,000
Jan 5 Materials Purchased 1,20,000 80,000
Jan 10 Wages Paid 40,000 40,000
Jan 15 Revenue 2,50,000 2,90,000
Feb 5 A’s Withdrawal 50,000 2,40,000
Feb 10 B’s Withdrawal 50,000 1,90,000

2. Joint Venture Account

Date Particulars Debit (₹) Credit (₹) Balance (₹)
Jan 5 Materials Purchased 1,20,000 1,20,000
Jan 10 Wages Paid 40,000 1,60,000
Jan 15 Revenue 2,50,000 90,000 (Profit)

3. A’s Account

Date Particulars Debit (₹) Credit (₹) Balance (₹)
Jan 1 Contribution 1,00,000 1,00,000
Jan 31 Share of Profit 45,000 1,45,000
Feb 5 Withdrawal 50,000 95,000

Leave a Reply

error: Content is protected !!