| In contrast, they may need to combine their abilities for | | | | complete financial accounting report of all his |
| only a limited period, or only for carrying out a specific | | | | transactions on behalf of the joint venture. |
| project. Because of the relatively short duration of | | | | In order to do this, each entrepreneur records the |
| such an association, a permanent arrangement such | | | | transactions that he concludes on behalf of the joint |
| as a partnership would be unsuitable and unnecessary. | | | | venture in his own accounting books, in a special |
| In such cases, parties often enter into a more informal | | | | account in the ledger, 'Joint venture with X'. The |
| type of association known as a joint venture. A joint | | | | accounting report that a joint venturer provides the |
| venture is an association similar to a partnership, but | | | | other joint venturer will be a summary of the |
| which is entered into for a limited and specific object. | | | | transactions recorded in this account. When all parties |
| These days they are frequently used in large | | | | have submitted their accounting reports to each other, |
| construction projects. | | | | a joint accounting statement is prepared from this |
| As a result of this latter development, large companies | | | | information to determine the result of the venture. This |
| have become involved in 'long-term' joint ventures and | | | | joint statement is also known as a memorandum |
| suitable accounting accountability of their interests in | | | | statement and is prepared separately from the |
| such ventures has become essential. | | | | relevant accounting reports. It does not form part of |
| There are two possible methods of accounting that | | | | the double entry accounting system in any particular |
| can be used for such joint ventures: (1) a separate set | | | | set of accounting books. |
| of accounting books is provided, in the same way as a | | | | The profit and loss of the venture as determined from |
| partnership. In this case no particular accounting | | | | the memorandum statement will be divided in the |
| problem exists. All transactions are recorded according | | | | statement between the entrepreneurs, according to |
| to the double entry system and an income statement | | | | the mutual agreement. |
| and balance sheet are prepared in the usual manner, | | | | Each entrepreneur will record his portion of the profit |
| (2) a separate set of accounting books is not provided. | | | | and loss from the venture, as determined in the |
| Because of the relatively short duration of many types | | | | memorandum statement, in the joint venture account in |
| of joint venture, separate accounting books are often | | | | his own accounting books. The debit or credit balance |
| not provided. | | | | on the account at this stage will represent the amount |
| In a joint venture each party, by mutual agreement, | | | | due by (if a debit balance) or due to (if a credit |
| assumes responsibility for certain specific tasks in | | | | balance) the other parties in the venture. |
| order that the objectives of the joint venture may be | | | | Since each entrepreneur records only those |
| achieved. For example, one party may purchase | | | | transactions that he concluded on behalf of the joint |
| certain goods on behalf of the joint venture and send | | | | venture and his portion of the profit (loss) in the joint |
| them to another party who is responsible for sales. At | | | | venture account in his accounting books, these |
| specific times (e.g. when the venture has been | | | | accounts in the separate sets of books will have the |
| concluded or at other specific times) each | | | | same balance but on opposite sides. This indicates that |
| entrepreneur must provide the other parties with a | | | | the entrepreneur owes the other that amount. |