Joint Venture Accounting
A joint venture is an association similar to a partnership, the only difference being the time scope of the project that is joint venture is entered into for a limited and specific object. Because joint ventures are considered relatively short in relationship value, a ‘real’ partnership would be a unnecessary hassle. As a joint venture is still a short-term partnership nonetheless with both costs and profits, it is still important to be able to keep accurate bookkeeping. A couple of accounting methods can be implemented in a joint venture scenario.
The more obvious method would be to have a set of books that are separate from the actual corporation and only used in joint venture documentation. The books are taken as usual and so no real risks are seen. In a more short term joint venture project, separate books are not really needed nor provided.
Participants of a joint venture team are much like salesmen for a company; they go out on the company’s behalf and spend money on goods, clients, or needs to make your company a success. They file an expense report with you so you have documentation of both their efforts and expenses. A joint venture partner must be able to do the same; provide documentation of their purchases for the joint venture.This is achieved much like individual accounting. The partner logs his expenses in a separate book addressing the joint venture. Once all have reported their expenses, they are jointly marked on a statement known as a memorandum statement. The profits and losses are then decided off this statement and divided accordingly.
The profits and losses will vary depending on the relationship of the team. If one partner is solely the marketer, he will report more profits than the one with the product to market. The profits of his books will be equivalent to the losses of the other’s books. This is how the books are reconciled easily.
A joint venture is still a business agreement and should be approached as such. This includes the accounting side of business. Keeping an accurate record not only helps you see what is owed or gained, but whether or not the efforts of the joint venture are a success or not. As the books are also kept on the group as a whole, it is easier to determine that it is because of the group that X-amount of profit is being made or X-amount of loss is being taken. At this point, you can then decide whether or not to continue with a joint venture as opposed to a partnership which you are in for the long haul.