Key takeaways
What this article covers, in order:
- How a joint venture differs from a partnership
- Two main methods of recording
- Format of a memorandum joint venture account
- Worked example: a Jaipur and Delhi rug venture
- Common mistakes to watch for
- Joint venture accounts and the accounting standards
A joint venture account is the account in which two or more parties record the costs and revenues of a single, usually short-lived business venture they undertake together, so they can work out the profit or loss and share it in the agreed ratio. Once the venture ends and the parties settle up, the account closes.
This is the classic bookkeeping topic you meet in commerce courses and in real life when, say, two traders club together to buy and sell one consignment. It is not the same as a corporate joint venture entity, which is covered by accounting standards and briefly explained at the end.
How a joint venture differs from a partnership
Both involve two or more people sharing profit, but the practical differences shape the accounting:
- Duration: a joint venture is formed for a specific job and ends when it is done; a partnership usually carries on a continuing business.
- Name: a joint venture often has no trading name of its own; the parties deal in their own names.
- Books: a partnership keeps a full set of books; a joint venture may not have any separate books at all.
- Other business: each co-venturer typically keeps running their own business alongside the venture.
Whether an arrangement is legally a partnership is a question of fact and of the agreement. If the venture is large or long, take advice on its legal and tax position before you start.
Two main methods of recording
Method 1: a separate set of books
Used when the venture is big enough to justify its own records. Three types of account are opened:
- Joint bank account, into which each co-venturer pays their contribution and through which venture receipts and payments run.
- Joint venture account, a nominal account that works like a trading and profit and loss account for the venture.
- Each co-venturer's personal account, showing what they contributed, their share of profit, and what they take back.
Typical entries in the venture's books:
- Contribution: Joint Bank Account Dr, To Co-venturer's Account
- Purchases or expenses paid from the joint bank: Joint Venture Account Dr, To Joint Bank Account
- Goods or expenses supplied by a co-venturer personally: Joint Venture Account Dr, To Co-venturer's Account
- Sales: Joint Bank Account (or the debtor) Dr, To Joint Venture Account
- Unsold goods taken over by a co-venturer: Co-venturer's Account Dr, To Joint Venture Account
- Profit: Joint Venture Account Dr, To each Co-venturer's Account in the agreed ratio
- Final settlement: Co-venturer's Account Dr, To Joint Bank Account
Method 2: no separate books, with a memorandum joint venture account
Used for smaller or one-off ventures. Each co-venturer records only the transactions they personally carry out, in an account in their own books called "Joint Venture with [other party] Account". This is a personal account: its balance tells you what one co-venturer owes the other.
At the end, the parties exchange their records and one of them prepares a memorandum joint venture account, combining every transaction to find the overall profit. It is called memorandum because it is not part of anyone's double-entry books; it is a working statement. Cash transfers between co-venturers are left out of it, because they do not affect profit.
A third variant, where one co-venturer records the whole venture in their own books, is sometimes taught. It follows the same logic as Method 1, using the other party's personal account in place of a joint bank.
Format of a memorandum joint venture account
Laid out like a trading account:
- Debit side: goods purchased or supplied by each co-venturer, expenses paid by each co-venturer, commission or salary allowed to a co-venturer by agreement, and the profit on the venture (balancing figure), split between the co-venturers.
- Credit side: sales made by each co-venturer, unsold goods taken over by a co-venturer at an agreed value, and any loss on the venture (balancing figure).
Worked example: a Jaipur and Delhi rug venture
Ravi, a Jaipur rug dealer, and Sunita, who runs a Delhi furnishing store, agree to buy and sell one consignment of hand-knotted rugs during the festive season. They share profit 3:2. Sunita gets a commission of 2% on sales for running the stall. No separate books are kept.
- Ravi buys rugs for ₹4,00,000 and pays freight to Delhi of ₹20,000, both in cash.
- Sunita pays stall rent of ₹30,000 and advertising of ₹10,000.
- Sunita sells rugs for ₹6,00,000 in cash.
- Sunita keeps the unsold rugs at an agreed value of ₹40,000.
- Sunita's commission: 2% of ₹6,00,000 = ₹12,000.
Memorandum joint venture account
- Debit: rugs purchased (Ravi) ₹4,00,000; freight (Ravi) ₹20,000; stall rent (Sunita) ₹30,000; advertising (Sunita) ₹10,000; commission (Sunita) ₹12,000; profit ₹1,68,000. Total ₹6,40,000.
- Credit: sales (Sunita) ₹6,00,000; unsold rugs taken over (Sunita) ₹40,000. Total ₹6,40,000.
Profit of ₹1,68,000 split 3:2 gives Ravi ₹1,00,800 and Sunita ₹67,200.
Journal entries in Ravi's books
- Purchase of rugs: Joint Venture with Sunita Account Dr ₹4,00,000, To Cash Account ₹4,00,000
- Freight: Joint Venture with Sunita Account Dr ₹20,000, To Cash Account ₹20,000
- Share of profit: Joint Venture with Sunita Account Dr ₹1,00,800, To Profit and Loss Account ₹1,00,800
- Settlement received: Cash Account Dr ₹5,20,800, To Joint Venture with Sunita Account ₹5,20,800
Before settlement, the account in Ravi's books has a debit balance of ₹5,20,800: his outlay of ₹4,20,000 plus his profit share. Sunita owes him that amount.
Journal entries in Sunita's books
- Rent and advertising: Joint Venture with Ravi Account Dr ₹40,000, To Cash Account ₹40,000
- Sales: Cash Account Dr ₹6,00,000, To Joint Venture with Ravi Account ₹6,00,000
- Rugs taken over: Purchases Account Dr ₹40,000, To Joint Venture with Ravi Account ₹40,000
- Commission: Joint Venture with Ravi Account Dr ₹12,000, To Commission Account ₹12,000
- Share of profit: Joint Venture with Ravi Account Dr ₹67,200, To Profit and Loss Account ₹67,200
- Settlement paid: Joint Venture with Ravi Account Dr ₹5,20,800, To Cash Account ₹5,20,800
Checking the result
Ravi spent ₹4,20,000 and received ₹5,20,800, a gain of ₹1,00,800, which is his profit share. Sunita received ₹6,00,000, spent ₹40,000 and paid Ravi ₹5,20,800, leaving her ₹39,200 in cash plus rugs worth ₹40,000. That is ₹79,200, equal to her commission of ₹12,000 plus her profit share of ₹67,200. Both sides reconcile.
Common mistakes to watch for
- Including inter-party cash in the memorandum account. Money one co-venturer sends the other is not income or expense of the venture. It belongs only in the personal accounts.
- Forgetting goods taken over. Unsold stock kept by a co-venturer must be credited to the venture at the agreed value, or profit is understated.
- Treating commission as a profit share. Agreed commission or salary to a co-venturer is a charge against the venture, debited before profit is found.
- Mixing venture costs into normal purchases. If Ravi had booked the ₹4,00,000 as ordinary purchases, his own trading account and stock records would be distorted.
- No written agreement. Agree the profit ratio, commission, who sells and at what price unsold goods will be taken over before the first rupee is spent.
Joint venture accounts and the accounting standards
The memorandum method is a bookkeeping technique for informal ventures. When a company has a structured joint arrangement, for example jointly controlled through a separate entity, financial reporting follows the accounting standards. Under Ind AS 111, a joint arrangement is one over which two or more parties have joint control, meaning decisions about the relevant activities need the unanimous consent of the parties sharing control, and it is classified as either a joint operation or a joint venture. Companies outside Ind AS look to AS 27. Those are reporting questions for the company's auditors, not something the memorandum method answers.
hellobooks< / a > -helps-you-track-a-venture-inside-your-own-books">How HelloBooks helps you track a venture inside your own books
If you are a co-venturer, the venture runs through your normal books, and the risk is that it gets lost among everyday transactions. In HelloBooks you can:
- Create a project or class for the venture and tag every related bill, expense and sale, so a project-wise profit and loss shows its contribution at any point.
- Open a ledger in the chart of accounts for "Joint Venture with [name]", and post profit share and settlement as journal entries with approval and a full audit trail.
- Capture the bills with document extraction: drop in the freight invoice or stall-rent receipt and AI extracts the vendor, amount and tax for you to review.
- Send the other party a statement of their account so both sides agree the balance before settling.
Your accountant can then confirm the profit share and the tax treatment from records that are already separated out.
