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Understanding Importance of Joint Venture
Big construction projects generally have large companies associated with them. As such many such companies often enter into joint ventures, albeit for a longer period of time. Because of this, it is of utmost importance that the necessary accounting is done in order to provide credibility.
There are a couple of ways in which this can be done -
* If you are given some different account books to calculate the figures, then your problem is effectively solved. One makes balance sheets and income statements just like a normal partnership accounting.
* However, you might not be given different books to maintain your calculations. This is widely the case because of the temporary nature of such associations. When two parties get into a joint venture, the duties are often pre-determined. This promotes efficiency and ensures that less time is taken to complete the project. For instance, someone might look completely on sales, while another party completely looks after purchase. When the project ends, on reaches any critical juncture, all the accounting books are provided for everybody to see, in order to promote transparency.
In order to keep track of accounts, the following methods might be adapted -
* Each partner might decide to calculate costs etc in a specific account in his ledger. Thus, when the other party demands to see all the costs, the first accountant will only have to provide them with a summary of the calculations in this ledger.
* After all such separate accounts have been brought into full public view, the accounts will be calculated jointly, which will ultimately decide if the project will be a success or failure.
* It is useful to remember that this joint declaration is completely separate and is never a part of any double entry system of accounts. It also goes by the name of memorandum statement.
* Now, because calculations have been done separately, it will also be easy to calculate the share of profit or loss that each party will have to incur. This will, obviously, be according to the agreement signed earlier, to which all parties agreed. This individual set of profit and loss will be recorded in individual accounting books for further reference. The debit or credit balance in these books determines how much you owe to or get from the other participants in this mission.
It is thus clear, that because all the parties will calculate their portions separately, the books will add up to the same amount. However, they might be from differing sides. i.e. Party A's credit will be Party B's debit and vice versa.
About the Author Christopher Freville is one of the online businesses' most successful entrepreneurs. See how and how you can be like him too. Click here now!
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