Meaning of Joint Venture
A Joint Venture is a temporary partnership formed by two or more persons for undertaking a specific business project for a limited period of time. Unlike a partnership, a joint venture dissolves automatically upon completion of the venture. The members of the joint venture are called Co-venturers. Each co-venturer contributes resources such as cash, goods, services, or skills and shares the profit or loss in an agreed ratio.
Joint ventures are common in construction contracts, import-export activities, big consignments, real estate development, film production, bulk trading, and single-project businesses where cooperation strengthens capability and reduces risk.
The key feature is that the venture is not a permanent business but a single, well-defined transaction.
Characteristics of a Joint Venture
- It is a temporary partnership for a specific purpose.
- No separate firm name is usually adopted.
- Each co-venturer contributes resources and shares profit/loss.
- Books may be maintained by one, some, or all co-venturers.
- The venture ends after the project is completed.
Methods of Recording Joint Venture Transactions
There are three main methods of recording joint venture transactions:
- 1. Joint Venture Account Method (Separate Set of Books)
- 2. Co-venturer’s Own Books Method (Memorandum Joint Venture Method)
- 3. Joint Bank Account Method
1. Joint Venture Account Method (When Separate Books Are Maintained)
Under this method, a separate set of books is opened for the joint venture. The following accounts are maintained:
- Joint Bank Account
- Joint Venture Account
- Co-venturers' Personal Accounts
This is the most systematic method. All expenses and purchases are debited to the Joint Venture Account, and all sales and income are credited to it. Profit or loss is transferred to the co-venturers in their profit-sharing ratio.
Journal Entries
| Transaction | Journal Entry |
|---|---|
| Cash contributed by co-venturers | Joint Bank A/c Dr. → To Co-venturers’ Personal A/c |
| Goods purchased | Joint Venture A/c Dr. → To Joint Bank A/c |
| Expenses incurred | Joint Venture A/c Dr. → To Joint Bank A/c |
| Goods supplied by a co-venturer | Joint Venture A/c Dr. → To Co-venturer’s Personal A/c |
| Sales made | Joint Bank A/c Dr. → To Joint Venture A/c |
| Unsold stock taken over by a co-venturer | Co-venturer’s Personal A/c Dr. → To Joint Venture A/c |
| Profit on joint venture | Joint Venture A/c Dr. → To Co-venturers’ Personal A/c |
| Loss on joint venture | Co-venturers’ Personal A/c Dr. → To Joint Venture A/c |
| Settlement of co-venturer balances | Co-venturer’s Personal A/c Dr. → To Joint Bank A/c |
2. Co-venturer’s Own Books Method (Memorandum Joint Venture Method)
Under this method, no separate set of books is maintained. Each co-venturer records only the transactions in which he is directly involved. At the end, a Memorandum Joint Venture Account is prepared to ascertain overall profit or loss.
Characteristics
- Simplest method
- Each co-venturer maintains personal records only
- Requires a memorandum account for final profit
Journal Entries (in individual books)
| Transaction | Journal Entry |
|---|---|
| Expenses paid | Joint Venture with X/Y A/c Dr. → To Cash/Bank A/c |
| Goods supplied | Joint Venture with X/Y A/c Dr. → To Purchases/Stock A/c |
| Sales made | Cash/Bank A/c Dr. → To Joint Venture with X/Y A/c |
| Commission earned | Joint Venture with X/Y A/c Dr. → To Commission A/c |
| Profit transferred | Joint Venture with X/Y A/c Dr. → To Profit & Loss A/c |
Memorandum Joint Venture Account
This account is prepared separately at the end to determine total profit or loss of the venture. It does not form part of double-entry bookkeeping.
3. Joint Bank Account Method
Under this method, a separate Joint Bank Account is opened in which all co-venturers deposit their contributions. All payments and receipts are routed through this account. It is generally used along with the first method.
Journal Entries
| Transaction | Journal Entry |
|---|---|
| Cash deposited | Joint Bank A/c Dr. → To Co-venturers’ Accounts |
| Payments made | Joint Venture A/c Dr. → To Joint Bank A/c |
| Receipts from sales | Joint Bank A/c Dr. → To Joint Venture A/c |
| Final settlement | Co-venturer’s A/c Dr. → To Joint Bank A/c |
Comparison of the Three Methods
| Aspect | Separate Books Method | Own Books Method | Joint Bank Account Method |
|---|---|---|---|
| Full set of books? | Yes | No | Partial |
| Most detailed | Yes | No | Moderate |
| Profit ascertainment | Direct from JV A/c | Memorandum A/c required | Direct |
| Common usage | Large ventures | Small ventures | Medium ventures |
Conclusion
Joint venture accounting ensures that all co-venturers record their contributions, expenses, sales and final settlements accurately. Depending on the size and nature of the venture, businesses may adopt the Separate Books Method, Own Books Method or Joint Bank Account Method. Proper journal entries help in fairness, transparency and efficient completion of the venture.