Mainly there are two ways of keeping joint venture account. Those are 1. Without keeping separate separate set of books, 2. With keeping separate set of books.
1. Without Keeping Separate Set Of Books
A separate set of books for joint venture transaction is not made under this method. in this method, every co-ventures record all the transactions in his books in connection with the joint venture. Tow types of accounts are maintained under this method namely joint venture account and co-venture's account. There are again three variations.
i. Each co-venture records his own transactions as well as the transactions of the other co-venture and also opening other co-venture's account for final settlement.
ii. Only one co-venture records the account
iii. Each co-venture records his own transactions only, which is known as memorandum joint venture method.
Each co-venture will open two principal accounts under this method. Those are Joint venture account and personal accounts of the co-venture.
Joint Venture Account
This account is prepared to ascertain the profit or loss on joint venture. Hence, it can be treated as nominal account. Goods purchased, goods supplied by the co-ventures, expenses incurred etc. are debited and sale proceeds, unsold stock, stock taken over by co-venture etc. are credited to joint venture account. The final balance of joint venture account shows profit or loss which is transferred to co-ventures' account according to their profit sharing ratio.
Personal Account Of Co-venture
The co-venture's account is debited with goods and sales proceeds taken over, remittance share of profit. Similarly, the personal account is credited with cash, goods supplied by the co-ventures.
2. With Keeping Separate Set Of Books
When the size of the venture is considerably large, then a separate set of books of accounts may be maintained. Under this system, accounts are maintained just like in the case of partnership. While preparing the accounts, the principle of double entry must be followed. Under this method, the following ledgers are maintained.
i. Joint Venture Account
ii. Joint Bank Account
iii. Co-venture's Account
Joint Venture Account
The joint venture account is very unique one where all the purchases, procurement related expenses, selling and distribution expenses as well as expenses related to the joint ventures are being debited like trading and profit and loss account. No any separate account of purchases, wages or any other expenses are opened. The goods supplied by co-ventures etc. are also debited to it. Likewise, sale proceeds, closing stock, goods taken over by co-ventures are credited to joint venture account. If the joint venture account shows credit balance, it means profit and if it shows debit balance, it is loss and transferred to co-ventures personal account.
Joint Bank Account
It is just like a cash book. It records all the cash and bank transactions. It is opened with the contribution of cash made by co-ventures. The investment made by then are deposited into a bank account and will operate this in their joint name. Any receipts of cash and any expenses related to venture are recorded in their account. The joint bank account is closed by transferring balance to the personal account of co-ventures.
Like the capital accounts in partnership, co-venture account is opened in joint venture. it is credited with the investment of each co-venture and debited with the drawings made by them. The profits of the venture is credited and loss of venture is debited. This account comes to end by cash payment from joint bank account.