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CMA Foundation · Fundamentals of Financial and Cost Accounting · Joint Venture

Under the separate set of books method of Joint Venture accounting, a credit balance in the Joint Venture Account, before it is closed, indicates what?

A credit balance in the Joint Venture Account means the venture has made a profit. Credits (sales and stock taken over) exceed debits (purchases and expenses), so the balance is transferred to the co-venturers' accounts in their profit-sharing ratio. A debit balance would instead indicate a loss.

  1. AA loss on the venture, to be debited to the co-venturers
  2. BProfit on the venture, to be shared among the co-venturers in the agreed ratioCorrect
  3. CThe amount still owed by the co-venturers to the Joint Bank Account
  4. DThe unsold stock remaining with the co-venturers

Explanation

The Joint Venture Account is a nominal account that collects expenses and purchases on the debit side and sales and stock taken over on the credit side. If credits exceed debits, the difference is a profit, which is transferred to the co-venturers' accounts in the profit-sharing ratio. A debit balance would show a loss.

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