A joint venture is a temporary or a short duration partnership between two or more persons jointly. They do not use the name of the firm. Also, this partnership is for a specific purpose and for a specific time. They also share profits and losses in the agreed ratio. Let us now discuss the joint venture accounts meaning and features.
Joint Venture Accounts
A Joint Venture Account is an agreement whereby two or more parties join together to carry a specific business, venture or purpose for a specified period of time.
Thus, there is joint control and the sharing of profits and losses is as per the agreed ratio. A Joint Venture ends when the time period elapses or the specific venture finishes. The persons who undertake a Joint Venture Account are Co-venturers.
Browse more Topics under Joint Venture And Consignment Account
Features of Joint Venture Accounts
- Duration: It is formed for a short period of time and thus, may be termed as a temporary partnership.
- Parties: The persons who come together to run a joint venture are the Co-venturers.
- Funds: The co-venturers bring the funds for the joint venture account.
- Sharing of profits or losses: The co-venturers share profits or losses are as per the agreement between them. In the absence of an agreement, they will share it equally.
- Computation of profits or losses: Usually, the co-venturers compute the profit or loss of the venture on its completion.
Learn more about Joint Venture Accounting here in detail.
Difference between the Joint Venture and Consignment:
|Basis of Difference||Joint Venture||Consignment|
|1. Meaning||It is a temporary or a short duration partnership between two or more persons jointly without using the name of the firm.||It refers to the sending of goods by the Principal to his Agent for selling them.|
|2. Parties||The parties are the Co-venturers.||The parties are the consignor and the consignee.|
|3. Relationship||The co-venturers are just like partners.||The consignor and the consignee share the relationship of principal and agent.|
|4. Profit sharing||The profits or losses are shared in the agreed ratio.||There is no profit sharing between the consignor and the consignee. Thus, the consignee only receives a commission.|
|5. Rights||The co-venturers have equal rights.||The consignor has the rights of the principal and the consignee has the rights of an agent.|
|6. Ownership||All the co-venturers are the co-owners of the business.||Only the consignor is the owner of the business.|
|7. Information||The co-venturers keep sharing the information on a regular basis.||The consignee sends an account sale to the consignor.|
|8. Maintenance of Accounts||There are various methods of maintaining accounts. The co-venturers maintain the accounts as per the agreement between them.||There is only one method of maintaining the accounts of the consignment.|
|9. Continuity||The joint venture comes to an end when the venture or the purpose is fulfilled.||The continuity depends on the will of the consignor and the consignee.|
|10. Basis of Accounting||Cash basis of accounting is followed.||Accrual basis of accounting is followed.|
Solved Example For You
What are the methods of recording Joint Venture transactions?
Following are the methods of recording Joint Venture transactions:
- Each co-venturer records the transactions of the Joint venture in his books and opens a ‘Joint Venture A/c’ and the accounts of the other co-venturers.
- The co-venturers maintain a separate set of books.
- The co-venturers prepare ‘Memorandum Joint Venture A/c’ to compute the profit or loss of the venture. Also, all the co-venturers prepare ‘Joint Venture with……A/c’.