What is a joint venture? | Methods of Recording Transactions
A Joint Venture (JV) is a temporary form of business where two or more people join together to meet short-term objectives.
It is quite similar to a Partnership firm but established without name or registration separately under any law. Generally, JVs are formed for some particular purpose of business objective, and once the objective is completed, the JV is put to an end.
There are many benefits to entering into a joint venture. Perhaps the most significant benefit is that it allows two businesses to pool their resources and expertise to achieve a common goal. This can result in more efficient and effective use of resources and a greater ability to take on larger projects or ventures.
Another benefit of joint ventures is that they can help build and strengthen business relationships. This can lead to increased cooperation and collaboration, which can be beneficial in the long term. Additionally, joint ventures can help businesses to tap into new markets and expand their customer base.
There are three methods of recording the JV transactions.
Method 1: When a separate set of books are maintained
In this method, each co-venturer maintains its own set of books of accounts.
- Joint venture account
- Co-venture ‘s account
- Joint bank account
Method 2: When a separate set of books is not maintained.
There can be two cases as given below:
CASE 1: When each co-ventures keep a record of all transactions
- Joint venture account
- Co-venture’s account
CASE 2 : When each co-venture keep record of its own transaction only
- Memorandum JV account
- Joint venture with co-venture account
Method 3: When each co-venturer keeps a record of their own transaction only
Journal Entries
Following are the journal entries to be passed in the case of JV.
Method 1: When a separate set of books are maintained
1. When the contribution made by the coventure’s
Joint bank account Dr.
To co-ventures’ account
When the expenses paid through a joint bank account
JV account Dr.
To joint bank account
When the expenses paid or materials supplied by the co-ventures from a private account
JV account Dr.
To co-venture account
When the sales proceeds or collections
Joint bank account Dr.
To joint venture account
When the collections received by coventures
Co-ventures account Dr.
To JV account
When the assets taken over by the coventure’s
Co-ventures account Dr.
To JV account
When the liabilities are taken over by the co-venturer
JV account Dr
To co-venture account
When there is profit on the joint venture
JV account Dr.
To co-venture account
When there is a loss on the joint venture
Co-venture account Dr.
To JV account
When the final settlement made to coventure’s
Co-venture account Dr.
To Joint Bank Account