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Journal Entries of Joint Venture

A joint venture is usually a temporary partnership organised by two or more parties for the purpose of carrying out a specific business plan. Profits to be shared by the parties in the predetermined ratio. It is generally not necessary of short duration. Persons are known as co-venturers and they do not use any firm or
social name. Their liability is limited to the adventure concerned. Joint venture may consist of joint consignment of goods, speculation in shares, underwriting of shares or debentures etc. As joint venture is limited partnership, therefore, in the absence of any agreement to the contrary the profits will be shared by the co-venturers in equal proportion.

For passing journal entries, we will use the records in the books of all venturers. Under this method each venturer opens a joint venture account and the personal account of other venturers. Suppose A and b enter into a joint venture then in A's Book joint venture account and the personal account of B will be opened. Similarly, in the books of B joint venture account and the personal account of A will be opened.

Following are the journal entries which we pass in the books of business of joint venture.

1. When expenditure is incurred or goods supplied by self 

Joint Venture account Debit

Cash Account Credit

Purchase Account Credit

2. When expenditures is incurred or goods supplied by the other venturer

Joint Venture account Debit

Personal Account of the Venturer Credit

3. When any advance in the form of bill receivable is received from the other venturer. 

Bill Receivable Account Debit

Personal Account of the Venturer Credit

4. When bill receivable is discounted 

Bank Account Debit

Discount Account Debit

Bill Receivable Account Credit

5. When the discount account is transferred to the joint venture account 

Joint Venture Account Debit

Discount Account Credit

6. When bill payable issued by self is got discounted by the other venturer

Joint Venture Account Debit

Personal Account of the Venturer Credit

7. When money is received on the account of joint venture by self

Bank Account Debit

Joint Venture Account Credit

8.When money is received by the other venturer

Personal account of the Venturer Debit

Joint Ventuer Account Credit

9. When Commission is receivable on account of joint venture by self

Joint Venture account Debit

Commission Account Credit

10.  When commission is receivable by other venturer

Joint Venture Account Debit

Personal Account of the Venturer Credit

11. When unsold stock is taken over by self

Purchase account Debit

Joint Venture Account Credit

12. When unsold stock is taken over by the other ventuerer

Personal account of the venturer Account Debit

Joint venture account Credit

13. When profit of the venture is to be shared

Joint Venture account Debit

Profit and loss account Credit

Personal Account of the Venturer Credit

For Example

A and B were the partners in a joint venture sharing profits and losses in the proportion of four-fifths and one fifth, respectively. A supplies goods to the value of Rs. 5000 and incurs expenses amounting of Rs. 400. B supplies goods to the value of the Rs. 4000 and his expenses amount to Rs. 300. B sells goods on the behalf of the joint venture and realizes Rs. 12000. B is entitled to a commission of 5%  on sales. B settles his account by bank draft. Give the journal entries and the necessary accounts in the books of both the parties.

A's Journal

1. Goods supplied and expenses paid on account of joint venture


Joint Venture Account Debit 5400

Purchase account Credit 5000

Cash Account Credit 400

2. Goods supplied and expenses met by B on account of joint venture 

 Joint Venture Account Debit 4300

B Account Credit 4300

3. Sales by B

B account Debit 12000

Joint Venture Account Credit 12000

4. Commission on joint venture sales due to B

Joint venture account Debit 600

B account Credit 600

5. Profit shared in the ratio 4 :1

Joint Venture Account Debit 1700

Profit and loss account Credit 1360

B account Credit 340

6. Receipt of bank draft from b in settlement 

Bank Account Debit 6760

B account Credit 6760

B's Journal 

1. Goods and expenses by A for joint venture 

Joint venture account Debit 5400

A account Credit 5400

2. Goods and expenses for joint venture by self

Joint Venture account Debit 4300

Purchase account Credit 4000

Cash account Credit 300

3. Realization of joint venture sales

Cash account Debit 12000

joint venture account Credit 12000

4. Commission earned on joint venture sales

joint venture account Debit 600

commission account Credit 600

5. Profit shared in the ratio 4: 1

Joint Venture account Debit  1700

Profit and loss account Credit 340

A account Credit 1360

6. Bank draft sent in the settlement of A's account 

A's account Debit  6760

Bank Account Credit  6760

COMMENTS

: 3
  1. Thank you so much.I was committing the same mistake again and again and I couldn't find where I was going wrong.You just cleared my doubt.All this is really helpful especially for the likes of me who don't take tuitions.Thank you!

    ReplyDelete
  2. Shares of rs.4,00,000 Rs.10 each were sold at Rs. 9.50 each and proceeds taken by him at an agreed value of Rs. 15,000

    ReplyDelete
  3. What will be the journal entry if goods purchased by other coventurer on credit?

    ReplyDelete
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Accounting Education: Journal Entries of Joint Venture
Journal Entries of Joint Venture
Accounting Education
http://www.svtuition.org/2012/08/journal-entries-of-joint-venture.html
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