Specialized Accounting NEP Unit 1

 

Unit-1

Accounting for Non-Trading Organizations

 

1.1 INTRODUCTION

Non-profit making organisations such aspublic hospitals, public educational institutions, clubs, etc., generally prepare Receipts and Payments Account and income and Expenditure Account to show periodic performance & BalanceSheettoshowfinancialpositionattheendoftheaccountingperiod.

In this Unit, we shall discuss the technique of preparing Receipts and Payments Account, Income and Expenditure Accounts and Balance Sheet of Non Profit or Non-trading organisations. Also we shall discuss and illustrate thetechniqueofpreparingIncome&ExpenditureAccountfromReceiptsand Payments Account. It may be mentioned that Income and Expenditure Account is just similar to profit and Loss Account prepared for the profit makingorganisations.

In case of income and Expenditure Account, the excess of expenditure over Income is treated as surplus. In non-profit making organisations, total cash receipts and total cash payments are highlighted through Receipts and Payments Account.

1.2  Meaning of Non-trading Organisations:

The organisations whose main objectives are not to earn profit but to provide valuable services to its member and to the society are known as non-trading organisations. These organizations are involved in promoting welfare ofsociety. Their charters prohibit the payment or provision of dividend. The example of such organisations are sports clubs, social clubs, educational institutions,libraries,hospital,religioustrust,temples,churches,mosques and gurudwaras etc.

1.3  Characteristics of Non-trading Organisations:

ü The main objective of such concern is not to earn profit but providing services to its members and society.

ü The main sources of revenues are Subscriptions money and Donation donations from member and societies.

ü A non-profit organisation is governed and managed by elected member in the same way a business corporation is managed by a board of director.

ü A non-profit organization employs the same accrual basis of accounting used by business enterprises.

ü NonProfitOrganisationspreparereceiptsandpaymentsaccount,income and expenditures account and balance sheet.

1.4  Accounting procedures of Non-trading Organisation

Non-trading organizations can keep and maintain their accounting records under single entry system or double entry system. The small sizes of organizations follow single entry whereas the large size of organizations follow doubleentrysystem.ANonTradingorganisationpreparesattheyearend, the following three financial statements:

A.   Receiptandpaymentaccount

B.   Incomeandexpenditureaccount

C.   Balancesheet

1.5  Meaning of receipt and payment account

It is summary of cash receipts and cash payments. It is real account. It is prepared at the end of the accounting period. All the cash receipts are recorded on the debit side and all the payments are recorded on the credit side of receipts and payments account.

Cash book consists of entries of receipt and payment in a chronological order, while the receipts and payment is a summary of total cash receipts and payments. Receipt and payment account starts with opening balance of cashandbankandendswithclosingbalanceofcashandbank.Itdoesnottake into account outstanding amount in receipts and payments account. The Receiptsandpaymentsmaybeofcapitalandrevenuenature.Thesemay relate to the currentor last or next year,so long, as they areactually receivedorpaidmustappearinthisaccount.

1.6  Characteristics of receipts and payment account:

The main characteristics or attributes are as follows:

ü Itisasummaryofcashtransactions.Likeacashbookrecordscash receipts on debit side and payments on the credit side.

ü Itincludescashandbankingtransactionswhetherthesearerelatedwith previous or current or subsequent yea ₹

ü It records all receipts and payments whether related to capital or revenue nature.

ü Itstartswithopeningbalanceofcashinhandandcashatbank.

ü Itendswithclosingbalanceofcashinhandcashatbank.

ü It does not include non-cash transactions like Depreciation or outstanding expenses or revenue.

ü Itisnotbasedonaccrualbasisofaccounting.

 

1.7  Limitations of receipts and payment account:

Thelimitationsofreceiptsandpaymentsarefollows:

ü  Itisnotabletofindsurplusanddeficitoftheorganizations.

ü  It doesnotaccountincomeandexpensesonaccrualbasis.

ü  Itdoesnotdifferentiatecapitalandrevenuereceiptsandpayments.

ü  Itdoesnotrecordnon-cash itemssuch as depreciationoroutstanding expenses.

1.8  Format of Receips andPaymetAccount

 Preparation of Receipts and Payment Account from giveninformation 

Example1.

From the following information of Red Cross Society, prepare Receipts and PaymentsAccountfortheyearendedDec.31,2019.

Cash in hand on Jan. 1, 2019 ₹ 35,000 and Cash at Bank on Jan. 1, 2019, ₹50,000. Donation Received during the year ₹25,000 & Subscription received is ₹20,000.

UtilitiesChargesPaid₹5,000;SalaryPaid₹45,000andOutstandingSalary is₹5,000 Honorarium paid to trainer ₹15,000 and Rent Paid ₹7,500.

Life membership Fees received ₹15,000 and Interest Received on Govt. Bond ₹1,000 Purchase of computer by check ₹ 30,000 and Purchase of Furniture for Cash ₹4,000 Entrance Fees Received ₹10,000.

PurchaseofSuppliesMaterialforCash₹6,000andPurchaseofGovernmentBond

₹20,000.

PaymenttoPettyCashier₹500.

CashinHandDec.31,2019                ₹8,000andCashinBankDec.31,2019 ₹15,000.

Solution

Red Cross Society Receipts and Payment Account FortheyearendedDec.31,2019

Receipts	Amount	Payment	Amount
ToBalanceb/d:		ByUtilities	5,000
Cash                             35,000		BySalaries	45,000
Bank                            50,000	85,000	ByComputer	30,000
ToDonation	25,000	ByPetty Cash	500
ToSubscription	20,000	ByFurniture	4,000
ToLifeMembershipfees	15,000	BySupply	6,000
ToInterestonBond	1,000	ByBonds	20,000
ToEntranceFees	10,000	ByRent	7,500
		ByBalancec/d:
		Cash-                 8,000
		Bank-              15,000	23,000
	1,56,000		1,56,000

 

1.10 MeaningofIncomeandexpenditureaccount

Incomeandexpenditureaccountisanominalaccount.Itisjustlikeaprofit and loss account. It is prepared to find out the amount of surplus or deficitmade during the accounting period. It records all the expenses and losses onthe debit side and all the revenue and gains on the credit side. It accounts for only revenue nature of expenditure and income. It shows only current year incomes and expenditure whether they are received or not. It excludedpreviousyearandnextyearincomeandexpenditures.Inotherwords, incomes and expenditures have to be adjusted for both outstanding andprepaiditemsonmatchingprinciplesofaccounting.

AccordingtoF.G.Williams,“Anincomeandexpenditureaccountisprepared to show all the revenue income for the period whether actually received or accrued and all the revenue expenditures for the period whether actually paidor accrued that is not yet paid.'

.11 Characteristics of income&expenditure account

ü Itrecordsonlyrevenuenatureofexpensesandincomes.

ü It records incomes, expenses and losses and gains which related to current accounting year.

ü It records all the expenses and losses on the debit side and all the incomes and gains on the credit side.

ü Both cash and non-cash items such as salaries paid and depreciation incurred are taken into account.

ü It ispreparedonthebasisofaccrualconcept.

1.11Format of Incomeand ExpenditureAccount

 

XYZ………
IncomeandExpenditureAccount
FortheYearended……,20XX
Expenditure	Amount	Incomes	Amount
ToSalaries&wagesexpense………		BySubscriptionreceived……….
Add:O/SSalariesatend              .…….		Add:Subs.DueatEnd         ……….
Less:Preaidsalaryat end           ……….	………….	Add:Adv.Subs.atBeg.……….
ToRentandTaxes	………….	Less:Adv.Sub.atEnd.……….
ToPostages&Stationaries	………….	Less:Sub.Dueat Beg.         ………..	…………
ToStock/Refreshmentconsumed	………….	ByEntance&admissionfees	…………
ToTravelling&fareexpense	………….	ByLokerRent	…………
ToRepairs&maintenanceexpense	………….	ByLifeMembershipFees	…………
ToNewspaper&Magzines	………….	ByDonation	…………
ToUpkeepofgroundexpense	………….	ByGrantfromGovt(revenue)	…………
ToInterest&bankcharges	………….	ByMatchortournamentfees	…………
ToHonorariumexpenses	………….	ByRefreshmentreceipts	…………
ToEntertainmentexpense	………….	ByProfitonsaleofassets	…………
ToMatch/tournamentexpennse	………….	BySaleofnewspaers&magzines	…………
ToAnnualExpense	………….	Bysalesofsportmaterials	…………
ToLossonsaleofassets	………….	ByInterestreceived            ..……..
ToCharity&releifexpense	………….	Add:Accruedinterest        ……….	…………
ToUtilitiesexpense	………….	ByOther Inomces	…………
ToOtherexpense	………….	ByDeficit
ToSurplus(ExcessofincomeoverExp.)	………….	(Excessofexp. Over income)	…………
	………….		………….

1.12 Itemsorterminologiesrelatingto Non-tradingorganisationsandtheir treatment in final accounts- Income and Expenditure and Balance Sheet.

Subscriptions:

Subscriptions are the amounts received from the members of non-profit organisations to maintain their membership. These are main source of revenue of the organisations. These are received periodically i.e., monthly or annually.Theannualsubscriptionsfeesduefrommembersareshownonthe credit side of income and expenditure account and on accruals basis of accounting and on the debit side of receipts and payments account on the basis of cash basis of accounting. Let us see an example for treatment of subscriptions in final accounts of an NPO.

Example2

A charitable trust received subscriptions of ₹ 20,000 for the year ended Dec.31, 2019 and it was shown on the debit side of receipts and payments account. The additional information is provided as follows.

-      Subscriptionreceivedincludes₹2,000for2020and₹3,000for2018.

-      SubscriptionOutstandingonDec.31,2019is₹4,000.

-      Subscription received in advance in 2018 is ₹1,500 that is subscription for 2019.

Youarerequiredtoshowaboveinformationinincomeandexpenditure account and balance sheet of the trust for the year 2019.

Solution.

TheaboveinformationwillbeshowninIncomeandExpenditurefortheyearended Dec.31andOpeningBalanceSheetasonJan.1,2019andclosingBalanceSheet as on Dec. 31, 2019.

 

CharitableTrust…..
Income&ExpenditureAccount
FortheYearEndedDec.31,2019
Expenditure	Amount	Income	Amount
		BySubscriptionReceived............. ₹20,000
		Add:O/SSubs.attheend(2019)..................................................... ₹4,000
		Add:AdvanceSubs.atbeg.(2018)...₹1,500
		Less:AdvanceSubs.atend(2019)...₹3,000
		Less:O/SSubs.attheend(2018)........... ₹2,000	₹20,500

 

CharitableTrust…..
BalanceSheet (ClosingBalanceSheet)
FortheYearEndedDec.31,2019
Assets		Liabilities
CurrentAssets:		CurrentLiabilities:
AccruedSubscription	₹    4,000	AdvanceSusbscription	₹     3,000

 

CharitableTrust…..
BalanceSheet(OpeningBalanceSheet)
AsonJan.1,2019
Assets		Liabilities
CurrentAssets:		CurrentLiabilities:
AccruedSubscription	₹2,000	AdvanceSubscription	₹1,500

TheamountofsubscriptiontobeshowninIncomeandexpenditureaccountcanbecomputed as Working Note as follows.

 

 

Subscriptionreceivedin2019:	₹20,000
Less:advancesubscriptionreceivedfor2020	-       (3,000)
Less:Arrearsofsubscriptionreceivedfor2018.	-     (2,000)
Add:Subscriptionreceivedinadvancein2018	+       1,500
Add:Outstandingsubscriptionatendfor2019	+       4,000
Subscriptiontobeshownfortheyear2019	₹20,500

Note:Theaccountingtreatmentforitemslikelockerrentoranyotheritem aredoneinfinalaccount in the same way as it is done for subscription.

Donations:

Donation is the amount received from individuals, firms, company or any other body as a gift. It is shown on the receipts side of receipt and payment account. Donation can be divided into two types:

a.      GeneralDonation:

Thisdonationisnotreceivedforspecificpurpose.Therefore,itcanbeused for any purpose. General donation is treated as revenue receipts and creditedto income and expenditure account. Whether the donation is a capital or revenue receipts, it depends upon the rules and regulation of the organization andtreatedaccordingly.Incaseoflargeamountofgeneraldonation,itisto betreatedascapitalreceiptandshownontheliabilitysideofbalancesheet and in case of small amount of general donation, it is to be treated as revenue receiptsandshowninthecreditsideofincomeandexpenditureaccount.

b.      SpecificDonation:

The donations which is received for specific purpose is known as specific donations such as donation for building, pavilion, tournaments, medical or educational or laboratory equipment. Specific donation is treated as capital receipts and shown on the liability side of balance sheet.

Legacy:

Itisalsoaspecificdonation.Theamountwhichislefttotheorganizationby the will of deceased person is called legacy. In other words, it refers to the amount that is donated under a will on the death of donor. Legacy is generally treatedascapitalreceiptandshownintheliabilitysideofbalancesheet.

LifemembershipFees:

Generally,themembersarerequiredtomakethepaymentinalumpsum only once which enables them to be the member for whole of the life. Life memberarenotrequiredtopaytheannualmembershipfees.Life membership fees is a capital receipts and shown in the liability side of balance sheet.

EntranceorAdmission Fees:

The fee which is collected from the new member at the time of their admissionisknownasentranceadmissionfees.Theentrancefeesaregenerallytreated asrevenuereceiptsandcreditedtotheincomeandexpenditureaccount.

Admissionfeesarepaidbymembersonlyonceattimeofbecomingamember. Hence,itistreatedasacapitalreceiptbysomeorganizations.Whetherthe

entrance fees are to be treated as capital or revenue receipt, they are decidedbytherulesandregulationsoftheorganizations.

Grants:

The financial assistance received for general purpose from central, state and local government, other organization is known as grant. For example, government schools, college and universities and hospitals get government grants or help to meet the expenses of their operating activities. The recurring grantsreceivedfromgovernmentistreatedasrevenuereceiptsandso creditedtoincomeandexpenditureaccount.

Government grants received for specific purposes like construction of buildings, library or hospitals etc. are treated as capital receipts and so such grants are transferred to such funds and shown in balance sheet. Therefore, general grants are treated as revenues receipts and shown on credit side of incomeandexpenditureaccount.However"specificgrantsmustbetreatedas capital a receipt which is shown in the liability side of balance sheet.

Honorarium:

Honorarium refers to the remuneration to be paid to outside (not an employee) for their specific services like guest lecturer, special trainer ad showing stage performance and concern etc.

Endowmentfund:

The fund which arises from a gift. It is relatively large amount of money advanced to the concern and placed in fixed deposits or invested in securities. The endowment fund is a capital receipt and shown on the liability side of balance sheet.

Sale Proceeds of News papers, Magazines and sports materials:

The amount receipts from sale of newspapers, magazines and sport material is treated as revenue receipts and credit to income and expenditure account.

Saleofold Assets:

Amount received from sale of old assets is capital receipts. The book value oftheassetssoldisdeductedfromtherelevantassetsinthebalancesheet. Profitonsaleofoldassetscreditedtoincomeandexpenditureaccountand lossonsaleofoldassetdebitedtoincomeandexpenditureaccount.

Bar Stock/Refreshment

Non-Profit organisation like sports club during the match entertainment sells cold drinks, coffees, tea, water, snacks and others refreshment items to the audiencewhichareknownasbarstocksorrefreshment.Thepurposeof sellingsuchrefreshmentitemsisnotearningprofitsbutprovidingtheviewers

necessaryrefreshmentitemsduringtheentertainmentsothattheycanenjoy maximum.

Thebuyingandsellingofrefreshmentitemsisoftradingnature.So,the sports club can also prepare bar trading account in order to determine Bar Trading Profit which can be shown in income and expenditure account on the creditside.Contrarytoit,thebarconsumedcanbeshownonthedebitside and receipts from sale of bar can be shown on the credit side of income and expenditure account. The opening stock of bar is shown in opening balance sheetandtheclosingstockofbarisshowninclosingbalancesheet.

Example3

SuperStarisanon-profit organisationanditbooksofaccountsareclosedonDec.31each year. The following information is available for the 2019.

 

Items	01-Jan		31-Dec
Stockofrefreshment	₹	1,900	₹	2,100
Creditorforrefreshment	₹	400	₹	500

Paymentmadetocreditorsforrefreshmentduringtheyear₹5,500andRefreshmentsold during the year is ₹12,000. Wages Expense ₹ 2,000 and Bar Expense ₹ 500.

YouarerequiredtofindoutrefreshmentpurchasedduringtheyearandprepareBar refreshment trading account as on Dec. 31, 2019.

 

CreditordforBarRefreshmentAccount
To	BankA/c	₹	5,500	ByBalanceb/d	₹	400
To	Balancec/d	₹	500	ByPurchaseofBarRefreshment	₹	5,600
		₹	6,000		₹	6,000
BarRefreshmentTradingAccount
To	OpeningBalance	₹	1,900	BySaleofBarRefreshment	₹	12,000
To	PurchaseofBarRefreshment	₹	5,600	ByClosingStock	₹	2,100
To	BarWages	₹	2,000
To	Barexpenses	₹	500
To	BarSurplus	₹      4,100
		₹14,100			₹14,100

Notes:

1)      Thecreditorsforanyotherexpensesarepreparedinsame mannerascreditorsforbar refreshment account to determine current year expenses.

2)      Thetradingsurplusforanyactivitiesarepreparedinsamemannerasforbarrefreshment account.

Special Fund:

Sometimes special funds are created to meet specific purposes such as Sport fund, Prizedistributionfund,TournamentfundandDevelopmentfunds.Tournamentfund iscreatedforconductingtournament,prizefundiscreatedforgivingprizes,and

developmentfundiscreatedforconstructionpurposesofbuildingsandgroundsetc. All such funds are shown on the liabilities sides of the balance sheet.

Alltheincomeandreceiptsrelatedtospecial fundsareaddedtosuchfundbalance andall expensesrelatedtosuchfundsaredeductedfromfund balanceonthe liabilitiessideofthebalancesheet.Ifthereisdeficitbalanceinspecialfund,then suchdeficitisshownonthedebitsideofincomeandexpenditureaccount.

Example4A

KolkataKnightRidersSportClubhasthefollowingitemsasonMarch31,2019.

MatchFund₹1,00,000;MatchExpenses₹1,20,000;SaleofMatchtickets₹50,000.Show how you will deal with the above items when preparing final accounts of KKR Sport club.

Solution.

Matchfundisspecialfund.Therefore,the followingaccountingtreatmentisdone in the balance sheet of KKR Sport Club.

 

KKRSport Club
BalanceSheet
FortheYearEndedMarch31,2019
Laibilities		Amount	Assets	Amount
MatchFund:	₹1,00,000
Add:SaleofMatchtickets	50,000
Less:MatchExpenses	1,20,000	₹30,000

Example4B

Kolkata Knight Riders Sport Club has the following items as on March 31, 2019. MatchFund₹1,00,000;MatchExpenses₹ 2,50,000;SaleofMatchtickets₹50,000;Match

fundInvestment₹1,00,000andDonationforMatch₹60,000.

Show how you will deal with the above items when preparing final accounts of KKR Sport club.

Solution.

 

MatchFund	₹    1,00,000
Add: DonationforMatch	60,000
Add:Saleofmatchtickkets	50,000
	₹    2,10,000
Less:MatchExpenses	2,50,000
Deficittobeshowninincome&Expenditureaccount	₹    -40,000

Capital Fund:

Capital fund denotes excess of total assets over total outside liabilities. Surplus of income and expenditures account is added and deficit of income and expenditures account deducted to capital fund. Capital fund is usually made up by special donations. Legacies, capitalization of admission fees and life membership fees etc.

Preparationofincomeandexpenditureaccountfromreceiptand payment account:

Followingstepsarefollowedforpreparingincomeandexpendituresaccount:

a.     Openingandclosingbalanceofcashinhandandcashatbankareignored.

 

b.      All capital receipts and capital payment are not recorded in income and expenditure account. These are directly recorded in the balance sheet.

c.      All revenue receipts for the current year are credited to the income and expendituresaccounttogetherwithaccruedincomeifanygiveninadjustments.

d.     All revenue payments for current year are debited to income and expenditure accountincludingoutstandingexpensesgiveninadjustmentsif any.Allrevenue non-cash expenses like depreciation, and bad debts on account of non-receiptofsubscription, and losses on sale of fixed assets are also debitedtoincome and expenditure account.

e.      If income side amount is more than expenditure side, the excess is known as surplus or excess of income and expenditure. On the other hands, if the total expenses exceeds total income, the shortage is known as deficit or excess of expenditure over income.

f.        Thesurplusisaddedtocapitalfundbutthedeficitisdeductedfromcapitalfund on liability side of balance sheet at the end of current year.

BalanceSheet:

Balance sheet is the statement that shows resources held in the form assets and the liabilities owed on a particular date by a non-trading organisation. It is prepared at the end of accounting year to show the financial position of non-trading or profit organisations as well as business organisation.

OpeningBalance Sheet:

Openingbalancesheetissummaryofassetsandliabilitiesinthebeginning of the year. Itis prepared for calculating opening capital fund. It is preparedfrom the additional information and receipts and payment account. All the assets and liabilities of last year are taken into account in the preparation of opening balance sheet. Opening capital fund is the difference between the amountofassetsandliabilities.

1.13 Format of Balance Sheet

 

XYZTrust/Organisation
BalanceSheet
FortheYearendedDec.31,201X
Liabilities		Amount	Assets	Amount
CapitalFund*	…........		NonCurrentAssets:
Add:CapitalReceipt:			Playground
(i)Donation	.........		Building                   .......
(ii)Lifemembershifees	….......		Less:Accum.Dep:…..	…........
(iii)EntranceFees	….......		Plant&Machinery…...
(iv)Legacy	….......		Add: Purchase       ….....
Add: Surplus	….......		Less:Sale                 ….....
Less:Deficit	…........	…..........	Less:Accum.Dep:…..	…........
RestrcitedorSpecialDonaion:			Furniture               ........
DonationforBuilding		…..........	Less:Depreciation…...	…........
DonationforEquipment		…..........	Motor Vehicles        ….....
DonationfoBooks		…..........	Less:Depreciation…...	…........
DonationforMatches		…..........	OtherEquipments…....
RestrcitedorSpecificFund:			Less:Depreciation…...	…........
TournamentFund		…..........	LibraryBooks             ….....
Construction/buildingFund		…..........	Less:Depreciation…...
EndowmentFund		…..........	Investment:
PrizeFund		…..........	InvestmentinBonds&
GovernmentGrants		…..........	Securites	…........
NonCurrentLiabilities:			FixedDeposits	…........
BankLoan		…..........	CurrentAssets:
CurrentLiabilities:			StockofMaterial&Supply	…........
OutstandingExpense		…..........	PrepaidExpense	…........
AdvanceSubscription		…..........	Debtors	…........
AdvanceIncome		…..........	AccruedSubscription	…........
Creditors		…..........	AccruedIncomes	…........
BankOverdraft		…..........	CashatBank	…........
OthercurrentLiabilities		…..........	CashinHand	…........
		…..........		…........

1.14 Additional informationoradjustments:

Adjustments are unrecorded events or transactions of non-tradingorganisation. Since every transaction have two sides effect according to accountingprinciple.Everyadjustment,therefore,hastwosideseffecton final account of non-trading organisation that is on income and expenditures account and balance sheet. These adjustments are related to the followingitems:

ü  Outstandingexpenses

ü  Prepaidexpenses

ü  Accruedincome/incomeearnedbutnotreceived

ü  Advanceincomes

ü  Lastyear'sexpenses:

ü  Lastyear'sincomes:

ü  Revenueandcapitalexpenditure

ü  ProfitorLossonsaleofassets

ü  Depreciationonfixedassets

ü  Receiptsfromsaleofnewspaper,magazinesandperiodicals

AdjustmentforOutstandingExpenses

Theexpenseswhichareincurredbutnotpaidduringtheaccountingperiod arecalledoutstandingexpenses.Thesearetheexpensesfromwhichservices or goods have been received but amount is not yet paid. Current year outstandingexpensesareshowninincomeandexpenditureaccount.

AdjustmentforPrepaidExpenses:

The expenses which has been paid in advance but its benefits is yet to be received for goods or services. In other words, prepaid expenses related to future accounting period. Prepaid expenses at beginning is added and at end deducted from expenses of current year expense and balance is shown in income and expenditure account. It is current assets and shown in balancesheet.

AdjustmentforAccruedincomes/outstandingincomes

The income earned but not received is known as accrued incomes. The adjustmentofoutstandingincomesistoshowsuchincomeforcurrentperiod and also present such income under the balance sheet as current assets.

Advanceincome/unearnedincomes

The income which is not earned but received in advanced is known as advanceincome.Forexample,subscriptionreceivedinadvancefornextyear or future period of time. Such unearned income is subtracted from subscription money received on the basis of matching principles and are to beshownascurrentliabilitiesifsuchincomeisexpectedtobeexpiredwithin one year.

AdjustmentforLastyearExpenses

1.  OutstandingExpense

The expenses which were incurred in previous year but could not be paid in inthepreviousyear.Suchexpensesareexpectedtobepaidduringthecurrent year.

2.  Lastyearprepaidexpense

Theexpensespaidinadvanceinthepreviousyearthoughnotincurredin lastyear.Theseareexpectedtobeincurredincurrentyear.Thus,itistobe shownascurrentyearexpenseinincomeandexpenditureaccountand currentassetsinbeginningbalancesheet.

AdjustmentforLastyear income

1.   Accruedincome

The income earned in the last year but not received, such income would be received during the current year. Thus, accrued income of last year if receivedin current year is to be subtracted from current year such revenue in income andexpenditureaccountandtobeshowninbeginningbalancesheetas current assets.

2.   Advanceincomeoflastyear

The income whichwas received but not earned in last year is known asadvance income of last year. The advance income received in last year isactually income of current year and therefore it is shown in current yearincome and expense account and as current liability in the beginning balance sheet.

Capitalizationofrevenueincomes

Sometimestherevenueincomelikeentrancefees,generaldonationetc.may betransferredtocapitalfundpartiallyorfully.

Profitorloss onsaleoffixed assets

Ifsellingpriceof the assetsismore than itsbooksvalue onthedateofsale, then the excess of selling price over the book value is known as profit on salesoffixedassets.Suchprofitonsaleofassetsisshownonthecreditsideas profit on sale of assets and the book value of assets together with accumulated depreciation is removed from balance sheet. On the other hand, if selling priceislessthanthebookvalueofassets,thentheshortageisknownaslosson sale of fixed assets. Such losses are shown on the debit side of income and expenditure account.

DepreciationExpense

The reduction in value of fixed assets due to its use or wear and tear is knownas depreciation expense. It is revenue expenses and it is shown on the debitsideofincomeandexpenditureaccount.Duetodepreciationexpenses,there isreductioninthevalueoffixedassets.Thus,theaccumulateddepreciation is subtracted from fixed assets and net fixed assets is shown in the closing balancesheet.Theassetsheldinthebeginningofthecurrentyearareshown inthebeginningbalancesheet.

Receiptsfromsaleofnewspapers,magazinesandperiodicals

The amount receipts from sale of newspapers, magazines and periodical are treated as revenue receipts as these are recurring in nature so credit to incomeandexpenditureaccount.Thoughthesereceiptsareinsignificantstill they are presented in the final accounts of non-trading and profit organisation. These items are different from the books which are treated as assets and capital expenditure.

Example5

 

ThefollowingReceiptsandPaymentaccountispreparedbyRedCrossSocietyfor the year ended Dec. 31, 2019.

Red Cross Society Receipts and Payment Account FortheyearendedDec.31,2019

Receipts	Amount	Payment	Amount
ToBalanceb/d:		ByUtilitiesExpense	5,000
Cash      35,000		BySalariesExpense	45,000
Bank      50,000	85,000	ByHonorarium	15,000
ToDonation	25,000	ByComputer	30,000
To Subscription	20,000	ByRentExpense	7,500
ToLifeMem.fee	15,000	ByFurniture	4,000
ToInterestonBond	1,000	BySupply	6,000
ToEntranceFees	10,000	ByBonds	20,000
		ByBalancec/d:
		Cash-                   8,500
		Bank-               15,000	23,000
	1,56,000		1,56,000

 

AdditionalInformation:

·         SubscriptionReceivedincludes₹2,000for2020and₹3,000for2018.

·         SubscriptionOutstandingonDec.31,2019is₹4,000

·         Subscriptionreceivedinadvancein2018is₹1,000thatissubscriptionfor 2019.

·         ComputerwasPurchasedonApril1,2019andFurnitureon1July2019.

·         TheSocietyhadotherfixedassets₹150,000asonJan.12019.

·         DepreciationRateonFixedAssetsandFurnitureis10%peryearandon Computer 15% per Year.

·         The Govt. Bonds is purchased on 1 July 2019 and rate of interest is 12% per year.

·         OutstandingSalaryis₹5,000for2019andDonationisgeneralDonation.

From the above information Prepare Income and Expenditure account of Red Cross Society.

Solu Red Cross Society Income and Expenditure Account For the year ended Dec. 31, 2019

 

Expenditure		Amount	Income		Amount
ToUtilitiesExpense		₹ 5,000	BySubscription*		₹ 20,000
ToSalaries Expense	45,000		ByDonation		25,000
Add:O/Ssalary	5,000	50,000	Byinterestreceived	1,000
ToHonorarium		15,000	Add:AccruedInterest	200	1,200
ToRent Expense		7,500	ByDeficit(Excessof
ToSupply Expense		6,000	Expenseover Income)		54,850
ToDepreciationExpense
OtherFAssets	15,000
Furniture	300
Computer	2,250	17,550
		₹1,01,050			₹1,01,050

 

WorkingNotes.

Computation of Subscription:

 

Subscriptionreceivedin2019:		₹20,000
Less:advancesubscriptionreceivedfor2020	-	(3,000)
Less:Arrearsofsubscriptionreceivedfor2018.	-	(2,000)
Add:Subscriptionreceivedinadvancein2018	+	1,000

 

 

 

Computation ofDepreciation:

Depreciation on other Fixed Assets =₹150,000 ×10% ×1= ₹15,000Depreciation on Furniture = ₹4,000 × 10% × 9/12 = ₹300DepreciationonComputer=₹30,000×15%×6/12=₹2,250 TotalDepreciation=₹15,000+300+2,250=₹17,550

 

Example6

 

Thefollowing Receipts and Payment accountof recreation clubfor theyear ended Mar. 31, 2018.Recreation Club Receipts and Payment Account FortheyearendedMar.31,2018

Receipts	Amount	Payment	Amount
ToBalanceb/d	₹31,000	ByCharityExpense	₹10,000
ToSubscription	1,80,000	BySalariesExpense	2,20,000
ToLegacy	40,000	ByPrinting&stationery	6,000
ToEndowmentFund	2,00,000	ByPostage	1,000
ToLockerRent	50,000	ByRentExpense	15,000
ToInterestonInvestment	15,000	ByUpkeepofground	20,000
ToProccedfromSports	45,000	BySportsMaterials	100,000
ToSaleofnewspapers	5,000	ByInternet&telephone	34,000
		ByInvestment insecurity	150,000
		ByBalancec/d:	10,000
	5,66,000		5,66,000

 

 

AdditionalInformation:

(i)      Theassetsandliabilitieswereasfollows:

 

Items	Mar.31,2017	Mar.31,2018
Land&Building	₹ 5,00,000	₹ 5,00,000
FurnitureandFittings	₹ 50,000	₹ 40,000
OutstandingSubscriptions	20,000	₹ 14,000
AdvanceSubscriptions	₹ 5,000	₹ 14,000
StockofSportMaterials		₹10,000

 

(ii)        Legaciesreceivedistobecapitalised.

(iii)         InvestmentinsecuritieswasmadeonMay1,2018at12%interestperyear.

(iv)        Stockofsportmaterialisusedduringtheyearis₹90,000.

(v)     DepreciationischargedonFurnitureonStraightlinemethod@20%per year.

PrepareIncomeandExpenditureaccountandBalancesheetfortheyearendedMarch31,2018.

Solution Recreation Club Income& Expenditure Account

For theyearendedMar.31, 2018

Expenditure	Amount	Income	Amount
ToSalariesExpense	₹2,20,000	BySubscriptions(W.N1)	₹1,65,000
ToCharityExpense	10,000	ByLockerRent	50,000
Toprinting&stationary	6,000	ByProceedsfromsports	45,000
ToPostageExpense	1,000	BySaleofnewspapers	5,000
ToRen Expense	15,000	ByInt.onInvest.           15,000
ToUpkeepofground	20,000	Add: Accrued
ToSportsmaterialused	90,000	Interest-(W.N2)1,500	16,500
ToInternet&telephone	34,000	ByDeficit	124,500
ToDepreciationonFurniture	10,000
	₹4,06,000		₹4,06,000

 RecreationClub Balance Sheet

For theyearendedMar.31, 2018

Liabilities	Amount	Assets	Amount
CapitalFund(W.N3)₹ 5,96,000		Land$Building	₹5,00,000
Add:Legacy                    ₹40,000		Furniture&Fit.50,000
Less:Deficit                   ₹124,500	₹5,11,500	Less:Dep.Exp.           10,000	40,000
EndowmentFund	2,00,000	Investmentinsecurity	150,000
AdvanceSubscriptions	14,000	StockofSportMaterials	10,000
		AccruedInterest	1,500
		Accruedsubscription	14,000
		Cash	10,000
	₹7,25,500		₹7,25,500

 

WorkingNotes

W.N1.Subscriptions tobeshown inincome andexpenditure account

 

Subscriptionreceivedin2018:	₹1,80,000
Less: Advancesubscriptionattheendof2018	(14,000)
Less:Outstandingsubscriptionattheendof2017	(20,000)
Add: AdvanceSubscriptionattheendof2017	5,000
Add:Outstandingsubscriptionatendfor2018	14,000
Subscriptiontobeshownfortheyear2019	₹1,65,000

W.N2.AccruedIntereston Investmentin securities:

Interest earned on Investment = ₹ 150,000 × 12/100 × 11/12 = ₹16,500 Interest received on security= ₹15,000 (Given in receipts &payments account) Accrued/outstanding Interest = ₹16,500 – ₹15,000 = ₹1,500

 

W.N3.Computation ofCapital Fund

RecreationClub Balance Sheet

For theyearendedMar.31, 2017

Liabilities	Amount	Assets	Amount
CapitalFund(Bal.Fig.)	₹5,96,000	Land$Building	₹5,00,000
AdvanceSubscription	5,000	Furniture&Fittings	50,000
		Outstandingsubscription	20,000
		CashinHand	31,000
	₹6,01,000		₹6,01,000

 

DepreciationonFurniture=₹50,000×20%=₹10,000

SportMaterialConsumed=OpeningStock+Purchase –ClosingStock

=₹0+₹1,00,000-₹10,000=₹90,000

 

CONSIGNMENT

Consignment accounting is a type of business arrangement in which one person send goods to another person for sale on his behalf and the person who sends goods is called consignor and another person who receives the goods is called consignee, where consignee sells the goods on behalf of consignor on consideration of certain percentage on sale.

Features:

1. Two Parties: Consignment accounting mainly involves two party’s consignor and consignee.

2. Transfer of Procession: Procession of goods transferred from consignor to consignee.

3. Agreement: There is a pre-agreement between the consignor and consignee for terms and conditions of the consignment.

4. No Transfer of Ownership: The ownership of goods remains in the hands of the consignor until the consignee sells it. The only procession of goods is transferred to a consignee.

5. Re-Conciliation: At the end of the year or periodic intervals consignor sends Pro-forma invoice while consignee sends account sale details and both reconcile their accounts

6. Separate Accounting: There is independent accounting done of consignment account in the books of consignor and consignee. Both prepare consignment account and record the journal entries of goods through consignment account only.

 

Terms used in consignment a/cs

Consignor: It is the person that sends goods.

Consignee: The person who receives the goods is called the consignee.

Consignment: Consignment is a business arrangement through which the consignor sends goods to the consignee for sale.

Consignment Agreement: It is legally written communication between the consignor and consignee, which defines the terms and conditions of the consignment.

Pro-Forma Invoice: When the consignor sends goods to the consignee, he also forwards statements showing details of goods such as quantity, price, etc. and that statement is called the Pro-forma invoice.

Non- Recurring Expenses: Expenses that are incurred by the consignor to dispatch the goods from his place to place of the consignee are called non-recurring expenses. These expenses are added to the cost of goods.

Recurring Expenses: The consignee incurs these expenses after the goods reached his place. These expenses are of maintenance of goods type’s expenses.

Commission: Commission is the reward/ consideration for the sale of goods on behalf of the consignor. It is as per the consignment agreement.

Account Sale: It is the statement forwarded by the consignee to consignor showing details of goods sold, amounts received, expenses incurred, a commission charged, advance payment and balance due and stock in hand, etc.

Advantages

 

 Increase in Business Exposure: Due to consignment sales increase, thereby increase in business exposure. It is a cost-effective method to expand the business.

 Lower Inventory Cost: Less inventory holding costs for the consignor;

 Incentives to Consignee: When consignee sells on behalf of the consignor, the former receives a commission and other incentives.

 Business Growth: Consignment benefits both consignor and consignee. Consignor gets lower inventory bearing cost, and consignee without investment earns the commission by selling on behalf of the consignor.

 

Disadvantages

 Lower Profit Margin: Due to consignment, the consignor has to pay commission to the consignee, thereby resulting in a lower profit margin in the hands of the consignor.

 Negligence by Consignee: Consignee’s negligence may create the problem.

 Risk of Goods Damaged: There is a high risk of goods damaged at the consignee’s place or during transport, especially perishable goods.

 High Charges: Sometimes, there are high maintenance charges of goods to be borne by consignee and high shipping or conveyance charges to be borne by consignor. This is the place of the consignee, and the consignor is far away from each other.

 

Commission

There are three types of commission payable to consignee on sale of the goods −

 Simple Commission − This is usually a fixed percentage on the total sale, calculated as per mutually agreed terms.

 Over-riding Commission − In case of an extra-ordinary sale of the goods, some specific amount is payable to consignee in the form of an incentive is called overriding commission. Over-riding commission is also calculated on the total sales.

 Del-credere Commission − “An agreement by which an agent or factor, in consideration of an additional premium or commission (called a del credere commission), engages, when he sells goods on credit, to insure, warrant, or guarantee to his principal the solvency of the purchaser, the engagement of the factor being to

 

 

pay the debt himself if it is not punctually discharged by the buyer when it becomes due.”

 

Valuation of unsold Consignment

Valuation of unsold stock will be done like a closing stock of a Trading concern and should be valued at the cost or the market price whichever is low. This stock will be valued at −

 Proportionate cost price and

 Proportionate direct expenses.

 

Here, proportionate direct expenses mean — all expenses incurred by the consignor and the expenses of consignee, which are incurred by him till the goods reach the warehouse.

Invoicing Goods higher than Cost

Under this method, goods are charged at the cost + profit and the pro-forma invoice also shows this higher price of such goods. To know the actual profit, at the end of an accounting period, consignment account will be credited with excess price so charged. Value of the stock will also be adjusted to the extent of profit element. Main reason to adopt this policy by consignor is −

 To hide actual profit from consignee.

 Valuation of a stock at the consignor’s warehouse is comparatively easy in this case.

 In this case, consignor usually directs consignee to sale goods on invoice price only. It prevents different sale price to different customers.

 

Loss of Goods

There may be two types of losses as explained below −

Normal Loss − Normal loss may occur due to inherent characteristics of goods like evaporation, drying up of goods, etc. It is not separately shown in the consignment account, but included in the cost of goods sold and the closing stock by inflating the rate per unit. To calculate the value of unsold stock, following formula is used.

 

If, there is an insurance policy in respect of the consigned goods; following entries will be passed in the books of a consignor

− Sr.No.	In the Books of Consignor	In the Books of Consignee
1	Payment of Insurance Premium (a) If insurance premium is paid by the consignor, then cash will be credited. (b) If Insurance premium is paid by the consignee, then consignee’s A/c will be credited.	Consignment A/cDr To Cash A/c Or To Consignee A/c (Being Insurance premium paid)
2	At the time of Abnormal Loss	Abnormal Loss A/cDr To Consignment A/c (Being Loss Incurred)
3	Acceptance of Claim by Insurance Company	Insurance Company (Name of the insurer) A/cDr To Abnormal Loss A/c (Being claim admitted)
4	On receipt of Claim	Bank A/cDr To Insurance Company A/c (Being amount of claim received)
5	In Case of Loss	Profit & Loss A/cDr To Abnormal Loss A/c (Being amount of Abnormal Loss transferred)

Valueofclosingstock=TotalvalueofgoodssentNetquantityreceivedbyconsignee×UnsoldquantityValueofclosingstock=TotalvalueofgoodssentNetquantityreceivedbyconsignee×Unsoldquantity

Netquantityreceived=Goodsconsignedquantity−NormallossquantityNetquantityreceived=Goodsconsignedquantity−Normallossquantity

 

Abnormal Loss − An abnormal loss may occur due to any accidental reason. It is credited to the consignment account to calculate actual profitability. Valuation of closing stock is done on the same basis as explained earlier i.e. proportionate cost + proportionate direct expenses.

Abnormal Loss and Insurance

 ACCOUNTING FOR JOINT VENTURES

 

Introduction and Meaning of joint Venture

Joint venture is a short term business undertaking jointly by two or more persons who share the profits and losses in an agreed ratio. If there is no agreement concerning the sharing of profits or losses, it is shared equally by all the parties.

Co-venturers: thepartieswhohave agreedtoundertakethejointventurearecalledco- venturers or joint venturers.

Definition:

 

1.    It is described as a temporary partnership without the use of the firmname, such temporary partnership comes to an end on the completion of the venture undertaking. Example are construction of building, underwriting of shares and debentures, consignment of goods etc.

Definition: 2.Joint Venture can be described as a business arrangement, wherein two or more independent firms come together to forma legallyindependent undertaking, for a stipulated period, to fulfil a specific purpose such as accomplishing a task, activity or project.

In other words, it is a temporary partnership, established for a definite purpose, which may or may not uses a specific firm name.

 

Featuresofjoint venture:

 

1.    Itisshortdurationspecialpurpose partnership.

2.    Partiesin jointventurearecalled co-venturers.

3.    Co-venturerscancontributefundsorsupplystockfromtheirregularbusiness.

4.    Co-venturersshareprofitorlossoftheventureatagreedratiolikewisepartnership.

5.    Generally,profitorlossofthe ventureiscalculatedoncompletionoftheventure.

6.    Accountingforjointventureisdoneonliquidationbasis.Goingconcernconceptis not appropriate for joint venture accounting.

SalientFeaturesofJointVenture

 

1.    Agreement: Two or more firms come to an agreement, toundertake a business, for a definite purpose and are bound by it.

2.    JointControl:Thereexistajointcontroloftheco-venturersoverbusinessassets, operations, administration and even the venture.

3.    Pooling of resources and expertise: Firms pool their resources like capital, manpower, technical know-how, and expertise, which helps in large-scale production.

4.    Sharingofprofitandloss:Theco-venturersagreetosharetheprofitsandlosses ofthebusinessinanagreedratio.Thecomputationoftheprofitandlossisusually done at the end of the venture, however, when it continues for the long duration, the profit and loss is calculated annually.

5.    Accesstoadvancedtechnology:Byenteringintojointventurefirmsgetaccess to various techniques of production, marketing and doing business, which decreases the overall cost and also improves quality.

6.    Dissolution: Once the term or purpose of the joint venture is complete, the agreementcomestoanend,andtheaccountsoftheco-venturers,aresettled,as and when it is dissolved.

The co-venturers are free to carry on their own business, unless otherwise provided in the joint venture agreement, during the life of the venture.

 

ObjectivesofJoint Venture:

 

1.    Toenterforeignmarketandevenneworemergingmarket.

2.    Toreducetheriskfactorforheavyinvestment.

3.    Tomakeoptimumutilisationofresources.

4.    Togaineconomiesof scale.

5.    To achievesynergy.

6.    Jointventuresareprimarilyformedforconstructionofdamsandroads,film production, buying and selling of goods etc.

DifferenceBetweenJointVentureandConsignment

Themaindifferencesbetweenjointventureandconsignmentareasunder:

Pointofdifference	Jointventure	Consignment
1.Nature	Itisatemporarypartnership businesswithoutafirmname.	:Itisanextensionofbusinessby principalthroughagent
2.Parties	Thepartiesinvolvinginjoint ventureareknownasco- ventures	Consignorandconsigneeareinvolving parties in the consignment.
3.Relation	The relation between co- ventures is just like the partnersinpartnershipfirm.	The relation between the consignor andconsigneeis'principalandagent'.
4.SharingProfit	The profits and losses of joint venturearesharedamongthe co-ventures in their agreed proportion.	The profits and losses are not shared betweentheconsignorandconsignee. Consignee gets only the commission
5.Rights	Theco-venturesinajoint venture have equal rights	In consignment, the consignor enjoys principal's right whereas consigneeenjoystherightofagent.
6.Exchangeof Information	Theco-venturesexchangethe required information among them regularly.	Theconsigneepreparesanaccount sale which contains a details of businessactivities carried on and is beingsenttothe consignor.
7.Ownership	All the co-ventures are the ownersofthejointventure.	Theconsignoristheownerofthe business.
8.Methodof Maintaining Accounts	Therearedifferentmethodsof maintaining accounts in joint venture. Asper agreement the co-venturesmaintaintheir account	Inconsignment,thereisonlyone method of maintaining account.
9.BasisofAccount	Cashbasisofaccountingis applicable in joint venture.	Actualbasisisadoptedinconsignment
10.Continuity	As soon as the particular ventureiscompleted,thejoint venture is terminated.	The continuity of business exists accordingtothewillingnessofboth consignor and consignee.

Distinctionbetweenjointventureandpartnership

 

Point of difference	JointVenture	Partnership
1.Meaning	JointVentureisabusinessformedbytwo or more than two persons for a limited period and a specific purpose.	A business arrangement where twoormorepersonsagreetocarry on business and have mutual shareintheprofitsandlosses,is knownasPartnership.
2.GoverningAct	Thereisnosuchspecificact.	Thepartnershipisgovernedbythe IndianPartnershipAct,1932.
3.Business carried onby	Co-venturers	Partners
4.Status               of Minor	A minorcannotbecomeaco-venturer.	Aminorcanbecomeapartnerto thebenefitsofthe firms.
5.Basis                 of Accounting	Liquidation	Going Concern
6.Trade Name	No	Yes
7.Ascertainment of Profit	Attheendoftheventureoroninterim basisasthecasemaybe.	Annually

 

 

MethodsofmaintainingJointVentureAccounts

There aredifferentmethodsofrecordingjointventure transactions.Theycanbebroadly classified into two following methods:

I.      Whenseparatesetofbooks aremaintained

II.              When separatesetofbooksarenot maintained.

 

I.  Whenseparatesetof booksaremaintained.

 

Underthissystemthreefollowingaccountsareprepared:

 

1.    JointBankAccount.

2.    JointVentureAccount

3.    Co-venturersAccounts

 

1.JointBankAccount: Theco-venturersopensseparatebankAccountforjointventure transaction by making initial contributions. It is opened jointly.

 

 

 

FormatofJointBankA/c

Dr                                                                                                                                            Cr

Particulars	Amount ₹	Particulars	Amount ₹
ToCo-venturersA/c(shareof capital by cash)	XXX	By    Joint    venture   A/c        (for purchasesfromjointbank a/c)	XXX
ToJointventureA/c(forcash sales)	XXX	By Joint venture A/c ( for expenses paid out of joint bank a/c)	XXX
ToJointventureA/c(Forsaleof asset)	XXX	ByCo-venturersA/c(B/F) (for payment made to co-venturers         on         final settlement)	XXX
ToJointventureA/c(contract pricereceivedin cash)	XXX
Toco-venturersA/c(amount receivedfromco-venturerson final settlement)	XXX
	XXX		XXX

 

 

 

2.    Joint Venture Account: this account is prepared for the purpose of ascertainment of venture profit. This account is debited for all venture expenses andits credited for all sales collections. Venture profit orlossis transferred to co- venturers accounts.

FormatofJointVentureA/c

Dr                                                                                                                                                                                           Cr

Particulars	Amount ₹	Particulars	Amount ₹
ToCo-venturersA/c(contributionin theformofGoods)	XXX	ByJointbanka/c (forcashSales)	XXX
ToJointBankA/c(forcashpurchases from joint bank a/c)	XXX	ByDebtor’sA/c(forcredit sales)	XXX
To       Creditor’s       A/c      (For            credit purchases)	XXX	ByCo-venturer’sa/c(forcollection received by co-venturers)	XXX
ToJointBankA/c(forexpensespaid out of joint bank a/c)	XXX	ByCo-venturer’sa/c(forunsold stock(asset)takenoverbyco- venturer)	Xxx
To        Co-         venturer’s        A/c              (for commission,interestetc.payableto co-ventures)	XXX	ByJointBanka/c(forsaleofasset)	xxx
ToCo-venturer’sA/c(forliabilities takenoverby co-venturer)	XXX	ByJointBank a/c	XXX
ToEquitysharesa/c(forlossdueto undervaluation shares)	xxx	ByEquitysharesa/c(forprofitdue toovervaluationofshares)	Xxx
ToDebtorsA/c(forcashdiscount allowedtodebtors)	xxx	ByEquitysharesA/c(forcontract pricereceived incashand shares)	xxx
ToDebtorsA/c(forbaddebtsfrom customers)	xxx	Bycreditor’sA/c(forcashdiscount allowedbycreditors)	xxx
ToCo-venturera/c(forprofitonjoint venture)	xxx	ByCo-venturer’sA/c(forlosson joint venture)	xxx
	xxxx		xxxx

3.    Co-venturers account: Personal accounts ofventurers are maintainedto keep recordoftheircontributionsofcash,goodsormeetingventureexpendituredirectly and direct payment received by them on venture transaction. This account is closed simultaneously with the closure of joint bank account.

FormatofCo-venturersaccount

Dr                                                                                                                                                                                           Cr

Particulars	Amount ₹	Particulars	Amount ₹
ToJointVenture A/c (for    collection     received      by     co- venturers)	XXX	ByJointbank a/c (shareof capitalbycash)	XXX
ToJointVentureA/c (for unsold stock (asset ) taken over by a co-venturer)	XXX	ByJointVentureA/c (forcontributionintheformof goods)	XXX
To Joint Venture A/c (loss on Joint                                  venture)	XXX	ByJointVentureA/c (for        expenses        paid       by      co- venturers)	XXX
ToJointBank A/c (forpaymentmadeto co-venturersonfinal settlement)	XXX	ByJointVentureA/c (for       commission,      interest     etc. payable to co-ventures)	XXX
		ByJointVentureA/c (forliabilitiestakenoverbyco- venturer)	XXX
		ByJointVentureA/c (forprofitonjointventure)	XXX
		By            Joint     Bank     A/c(    amount receivedfromco-venturersonfinal settlement)	XXX
	XXXX		XXXX

 

Journalentries:

Followingarethejournalentriesmadewhenseparatesetofbooksare maintained:

 

Particulars	L F	DrAmount₹		CrAmount₹
1.whencontributionmadebyco-venturers		JointbankA/c	Dr	Toco-venturer’sA/c
2.whentheexpensespaidthroughJoint bank A/c		Jointventure A/c	Dr	ToJointbankA/c
3.whentheexpensespaidormaterials suppliedbytheco-venturersfromthe private account		JointventureA/c	Dr	Toco-venturer’sA/c
4.Salesproceedsor collections		JointbankA/c	Dr	ToJointventure A/c
5.Collectionsreceivedbyco-venturers		Co-venturer’sA/c	Dr	ToJointventure A/c
6.Assetstakenover byco-venturers		Co-venturer’sA/cDr		ToJointventure A/c
7.Liabilitiestakenoverbyco-venturers		Jointventure A/c	Dr	Toco-venturer’sA/c
8.Profiton Joint venture		Jointventure A/c	Dr	Toco-venturer’sA/c
9.Losson joint venture		Co-venturer’sA/cDr		ToJointventure A/c
10.Finalsettlementbyco-venturers		Co-venturer’sA/cDr		To Joint BankA/c