Cheques issued but not yet presented for payment

In a cash book, the cheques issued for payment are recorded

without any delay. But the bank records the entry only when the
cheque is presented to them for payment. Hence, there is a time
gap between the entry made in the cash book and the one made in
the bank pass book. While preparing the bank reconciliation
statement, the date of issue of cheque and presentation of the
cheque to the bank for payment will vary. For example, a cheque
of Rs.10,000 was issued on 4th June, 2016 and presented to the bank
on 12th July, 2016. This information will be recorded in the cash book
on 4th June while the bank will record it on 12th July, 2016. Hence,
the cash book balance will be lesser by Rs.10,000 on 30th June 2016.

Cheques deposited in the bank but not yet cleared

Cheques deposited in the bank are entered on the debit side of the
bank column of the cash book on the date of deposit. But the bank
credits the account holder’s account only when it receives the
payment from the other bank. Hence, there is a time gap between
the deposit of cheques and the credit given by the bank. The bank
balances will differ on a particular date as per the cash book and
the bank pass book. For example, a cheque of Rs.10,000 deposited
in the bank on 4th June, 2016 and presented to the bank on 12th July,
2016. This information will be recorded in the cash book on 4th June
while the bank will record the cheque collected on 12thJuly, 2016.
Hence, the cash book balance will be higher by Rs.10,000 on
30th June 2016.
ii. Transactions recorded by the bank

Interest credited by the bank but not recorded in the cash book

Bank allows interest on the amount deposited by the account

holder and credits the account holder’s account. Thus, the balance
of her/his account will increase in the books of the bank. But the
account holder will record it only when she/he is realised about the
interest allowed by the bank. Hence, the balance as per bank pass
book will be higher than the balance as per cash book on a
particular date for the time being.

Interest and dividends collected by the bank

On behalf of the account holder, bank collects interest and

dividends and credits the account holder’s account. But the account
holder will come to know only when she/he receives the bank
statement. Hence, the balance as per bank pass book will be higher
than the balance as per cash book for the time being.

Bank charges and interest charged by the bank are not recorded in
the cash book

Bank renders certain services to its customers for which it charges

an amount known as bank charges or service charges. Also, bank
charges interest for providing overdraft facilities. Bank debits the
account holder’s account in its book for the amount being charged.
But the account holder will realise it only when she/he receives the
bank statement. Hence, the balance as per bank pass book will be
lesser than the balance as per cash book for the time being.
Direct payments by the bank

Sometimes bank may receive standard instruction from an account

holder to pay the insurance premium periodically. The bank will
then debit the account holder’s account for making payments on
his/her behalf. But the account holder will realise it only when
she/he receives the bank statement. Hence, the balance as per bank
pass book will be lesser than the balance as per cash book for time
being.

Direct deposit into bank by a customer

Bank may sometimes receive payment directly from a customer to

credit an account holder’s account. But the account holder will
come to know only when she/he receives the bank statement.
Hence, the balance as per bank pass book will be higher than the
balance as per cash book for the time being.

Dishonour of a bill discounted with the bank

Sometimes, the bank may not receive payment against bills of

exchange or promissory notes discount by it. Bank will debit the
account holder’s account along with the charges incurred by it. But
the account holder will come to know only when she/he receives
the bank statement. Hence, the balance as per cash book will be
higher than the balance as per bank pass book for the time being.

Bills collected by the bank on behalf of the customer

 Bank collects the amount for sale of goods on behalf of the
account holder and credits the account holder’s account. But the
account holder will increase her/his cash balance only when the
bank sends her/him the bank statement. Hence, the balance as per
bank pass book will be higher than the balance as per cash book for
the time being.

iii. Errors and Omissions

There may be some errors or omissions in the cash book or bank

pass book. For example, a cheque of Rs.30,000 deposited in the
bank is recorded as Rs.3,000 in the cash book i.e. over or under
casted the amount in the bank column of the cash book. This is an
error committed in the cash book. Similarly, when a cheque
of Rs.10,000 collected by bank on behalf of the account holder, say,
Mr. Arun, is entered in the account of Mr. Varun. This is an error
committed in the bank pass book. In this way, there is a difference
in the balances of cash book and that of the bank pass book.

Q1 B) Why do you maintain bill book separately? State the

transactions recorded in Bills receivable and Bills Payable journal

Ans: Recoding the transactions in general journal is very convenient,

if the transactions are a few. But where numerous bills are drawn
and accepted by a business man, than it is advisable for him to
record them in special journals (books) known as bills receivable
book and bills payable book. The bills drawn and received are
recorded in bills receivable books and bills accepted are recorded in
bills payable book.
The total of the bills receivable book shows the total amount of the
bills drawn and received. This total will be posted to the debit side
of bill receivable in ledger. The parties from whom the bills have
been received will be credited with the amount shown against their
names. In the same way, the total of the bills payable book will be
posted to the credit side of bills payable account in ledger. The
parties to whom acceptances have been given are debited.
When these two special books are maintained in a business, the
general journal is used only for the following bills transactions:

1. When a bill is endorsed in favor of a creditor.

2. When a bill receivable and a bill payable are dishonored.

3. When a bill is renewed.

Format of Bills Receivable and Bills Payable Book:

The format of bills receivable and bills payable book is shown

below:

Bills Receivable Book

From Name Dat Du Wher

Seri How
Dat When L/ of e Ter e e Amou Remar
al dispos
e Receiv R Accept of m Dat Paya nt ks
No. ed off
ed ors Bill e ble
Bills Receivable Book
Name Name
Serial Due Where
Date of L/R of Term Amount Remarks
No. Date Payable
Drawer Payee

Journal Entries:

Date of Entry : Date of Bills

In the Books of Drawer In the Books of Drawee
Bills Receivable A/c—– Dr. Creditor A/c—– Dr.
To Debtor A/c To Bills Payable A/c

Transaction: At the time of Payment

Date of Entry : Date of Payment
In the Books of Drawer In the Books of Drawee
Bank A/c—– Dr. Bills Payable A/c—- Dr.
To Bills Receivable A/c To Bank A/c

Q.2. a) What is a suspense account? Why is it opened and how it is

closed? Explain
Ans: Definition of Suspense Account

A suspense account is a general ledger account in which amounts

are temporarily recorded. The suspense account is used because
the appropriate general ledger account could not be determined at
the time that the transaction was recorded.

As soon as possible, the amount(s) in the suspense account should

be moved to the proper account(s).

Example of Using a Suspense Account

An accountant was instructed to record a significant number

of journal entries written by the controller of a large company.
Unfortunately, there was one amount that did not have an account
designated. In order to complete the assignment by the deadline,
the accountant recorded the "mystery" amount in the general
ledger Suspense account. When the controller is available, the
accountant will get clarification and will move the amount from the
Suspense account to the appropriate account.

Suspense accounts are used when your trial balance is out of

balance or when you have an unidentified transaction. The suspense
account is a general ledger account that acts as a holding account
until the error is discovered or the unknown transaction is identified.
When working with the trial balance, you can open one suspense
account to hold all of the discrepancies until you find them.
However, suspense accounts are temporary accounts that must be
closed by the end of your accounting cycle.
The suspense account is a general ledger account that acts as a
holding account until the error is discovered or the unknown
transaction is identified.

Trial Balance Suspense Accounts

The suspense account is listed on the trial balance under the Other
Assets heading. It remains there until the reasons for the imbalance
are discovered and corrected. If your trial balance debits are larger
than the credits, the difference is recorded in the suspense account
as a credit.
Conversely, if the trial balance credits are larger than the debits, the
difference is recorded in the suspense account as a debit. Once you
find the reason for the trial balance and correct it, the account is
closed and removed from the trial balance.

Received Payments Suspense Accounts

A suspense account is opened whenever you receive a payment

and you cannot identify which invoice the customer wants paid or
which customer made the payment. If your customer sent in a
partial payment, contact the customer to find out which items or
invoices the payment covers.

If you do not know who made the payment, review the open
invoices to try to match up the payment. Before posting the
payment, call your customer to verify the payment is correct. If you
cannot identify the customer, hold the payment in suspense until a
customer comes forward to claim the payment.
Accounts Payable Suspense Accounts

Accounts payable suspense accounts are opened when you

purchase a fixed asset by making payments but will not receive the
asset until it is fully paid off. The suspense account lets you record
your payments without assigning the payments to a specific
equipment or machinery account. Otherwise, combining the
payments with an existing fixed asset would distort the value of that
asset. Once the final payment is made and the asset is received, you
close the suspense account and open a separate account for the
new fixed asset.

Suspense Account Journal Entries

Open a suspense account by recording the full amount in question.

For example, you might receive an unknown payment for Rs.500. To
account for the payment, open a Suspense Account and credit the
account with the full Rs.500. To balance the transaction, make a
debit to Cash for Rs.500. When you find out which customer made
the payment, debit the Suspense Account for Rs.500 and credit your
Account Receivable customers account for Rs.500. This closes out
your suspense account and posts the payment to the correct
customer account.

Q.2. (b) Why is provision for doubtful debts created? How it is

shown in the Balance Sheet? Explain
Ans : The provision for doubtful debts is the estimated amount
of bad debt that will arise from accounts receivable that have
been issued but not yet collected. It is identical to the allowance
for doubtful accounts. The provision is used under accrual basis
accounting, so that an expense is recognized for probable bad
debts as soon as invoices are issued to customers, rather than
waiting several months to find out exactly which invoices turned
out to be uncollectible. Thus, the net impact of the provision for
doubtful debts is to accelerate the recognition of bad debts into
earlier reporting periods.

A business typically estimates the amount of bad debt based on

historical experience, and charges this amount to expense with a
debit to the bad debt expense account (which appears in
the income statement) and a credit to the provision for doubtful
debts account (which appears in the balance sheet). The
organization should make this entry in the same period when it
bills a customer, so that revenues are matched with all applicable
expenses (as per the matching principle).

The provision for doubtful debts is an accounts receivable contra

account, so it should always have a credit balance, and is listed in
the balance sheet directly below the accounts receivable line
item. The two line items can be combined for reporting purposes
to arrive at a net receivables figure.

Later, when you identify a specific customer invoice that is not

going to be paid, eliminate it against the provision for doubtful
debts. This can be done with a journal entry that debits the
provision for doubtful debts and credits the accounts receivable
account; this merely nets out two accounts within the balance
sheet, and has no impact on the income statement. If you are
using accounting software, create a credit memo in the amount
of the unpaid invoice, which creates the same journal entry for
you.

It is highly unlikely that the provision for doubtful debts will

always exactly match the amount of invoices that are actually
unpaid, since it is only an estimate. Thus, you will need to adjust
the balance in this account over time to bring it into closer
alignment with the ongoing best estimate of bad debts. This can
involve an additional charge to the bad debt expense account (if
the provision appears to initially be too low) or a reduction in the
expense (if the provision appears to be too high).

Provision for doubtful debt is a expected loss which may be arises

due to difference in book value of debt (debtor) or realisable value
of debt.

It help to show real value of debtor (asset) as on balance sheet date.

Further Provision relate to Assets is covered by Accounting standard

-4 , Contingencies and event occurring after balance sheet date.

Presentation in balance sheet

Provision for doubtful shown by deducting from gross Trade
receivable.

Illustration :-
Notes to Accounts

Note No xxx Trade receivable

1. Aggregate amount outstanding. xxx for period more than

180 days.
Less : Provision for doubtful debt. (xxx). xxx.

2. Other. xxx
Less : Provision for doubtful debt. (xxx). Xxx

Q.3. How would a not-for- proft organization deal with following:

(a) Outstanding Subscriptions
(b) Donation
(c) Tournament Fund
(d) Legacy
(e) Life Membership Fee

Ans : A nonprofit organisation (NPO), also known as a non-business

entity or nonprofit institution is dedicated to a particular social
cause or advocating for a shared point of view. In economic terms,
it is an organization that uses its surplus of the revenues to further
achieve its ultimate objective, rather than distributing its income to
the organization’s shareholders, leaders, or members. In this article,
learn about accounting for NPO.

The treatment of the terms in the question are as under:

(a) Outstanding Subscriptions :

 It is a primary source of income of a Non- Profit organization.
It is usually collected every month from all ordinary members.
Subscription is the amount paid by the members to keep their
membership alive.

The subscription amounts are treated as revenue receipts.

Subscription received from members is credited to Income &
Expenditure account on accrual basis i.e. total amount
receivable from all the members as subscription should be
considered as income for the year.
Statement showing Computation of Subscriptions Income for the
Year

Particulars Rs.
A. Subscriptions received during the current year xxx
B. Add: Outstandingsubscriptionsattheendof xx xx
currentyearAdvancesubscriptionsinth xx xx
C. (i ebeginningofcurrentyearOutstanding xx xx
D. Subscri Income to be credited to Income and xxx
)( subscriptionsinthebeginningofcurrent xx
ption Expenditur eAccount(A+B–C)
ii yearAdvancesubscriptionsattheendof xx
(b) ) Donation
current year xx
Less:
Donations are the life blood of nonprofits that help them
survive (iand fulfill their missions. Proper accounting of donations
helps an )( organization understand where its support is coming
from and ii the value of that support. Donations can also provide
benefits) to corporate and individual donors by allowing them to
deduct the donation from their taxes. Donations represent the
amount donated by any person (whether member or outsider )
to the organization for a general or specific purpose. The
accounting treatment is summarized as follows:
 Types of Donations AccountingTreatment
and Legacies
aGeneral Donations and a) These donations are treated
) Legacies as revenue receipts and
thus, are transferred to the
bSpecific Donations and b) These
credit donations
of Incomeare treated
and
) Legacies as capital receipts
Expenditure and thus,
Account.
are transferred to a 'Special
Fund Accountant' (e.g.,
Building Fund) maintained
for the purpose. Any
income relating to such
'Special Fund Account' is
added to the respective
fund. Any revenue
expenditure relating to
(c) Tournament Fund 'Special Fund Account' is
deducted from the
respectiveforfund.
It is maintained by Not-for-profit organisation meetingHowever,
expenses
any expenditure of
and incomes related to tournament . It is of capital nature capital
nature Balance
,hence,shown on the liability side of Closing on account
Sheet of
andthis
Special
adjustment related to tournament should be doneFund
through it(e.g.,
expenditure on the
(d) Legacy construction of building out
of Building Fund) should be
Legacies represent the donations whichshown on theunder
are given assets sideon
a will of
the death of a donor. the Balance sheet and an
Types of Donations equal AccountingTreatment
amount should be
and Legacies transferred from that Special
Fund to the Capital Fund.
 aGeneral Donations and a) These donations are treated
) Legacies as revenue receipts and
thus, are transferred to the
credit of Income and
Expenditure Account.
bSpecific Donations and b) These donations are treated
) Legacies as capital receipts and thus,
are transferred to a 'Special
Fund Accountant' (e.g.,
Building Fund) maintained
for the purpose. Any
income relating to such
'Special Fund Account' is
added to the respective
fund. Any revenue
e) Life Membership Fee: expenditure relating to
a) Periodical 'Special
These Fund Account'
are treated as revenueis
b) Life Membership Fee These may be treated in
deducted
receipts. any one the
from of the
following ways :– fund. However,
respective
a) These subscriptions
any expenditure may of be treated
capital
as anature
capitalonreceipt
accountandofthusthisbe
transferred
Special to a Fund
"Special Account"
(e.g.,
which shall be shown
expenditure on inthethe
Balance Sheet tillofthe
construction membership
building out
ceases when the
of Building same
Fund) maybebe
should
Q.4. What is joint venture? Explain various
shownmethods
transferred onto the of Capital
recording
theassets ofthe
side Fund
joint venture transaction. Give entries in each
Account.
the case sheet and an
Balance
b) These subscriptions
equal amount maybeshouldtreated
be
Ans: A Joint venture is a contract between
as deferred
transferredtwo or that
revenue
from more persons
receipts.
Special In
who agree to do a small piece of commercial
such Funda to the undertaking
case, jointly.
an Fund.
Capital amountIt
representing the normal annual
subscription is treated as a revenue
receipt and the balance appears in
is a temporary partnership, without the use of a firm name limited
or restricted to a particular venture in which the two or more
persons agree to contribute a specific amount of capital and to
share profits or losses either in equal proportions or in any other
agreed proportion.

Nature of Joint Venture

A Joint venture may be in connection with a joint cosignment of

goods, and under-writing* of shares or debentures of a new joint
stock company, speculation in shares, the construction of a building
jointly, the purchase and sale of a particular plot of land or any
other similar temporary or seasonal business enterprise. Once the
joint undertaking is complete and over; the joint venture or limited
partnership ends and no liability will then attach to any party.

The various methods of recording the joint venture transaction is as

under:

No Separate sets of Books :

It may be arranged that one of the parties will alone manage the
joint venture, that is he alone will look after the buying and the
selling on joint account. He may, for this service, be allowed certain
commission by other parties to the joint venture. Under such a
circumstance he will open a Joint Venture Account with such and
such person'' in his books. The Joint venture account will be debited
with the cost of goods and with expenses incurred by him, his cash
account will be credited. If he is entitled to a commission, joint
venture account will be debited and commission account will be
credited. When he sells goods on joint account, joint venture
account will be credited and cash or debtor's account will be
debited. Each party may remit his proportion of cost, which will be
placed to the credit of the party's account. This amount plus the
share of profit will then be repaid to that party. The joint venture
account will then be balanced. The balance of this account will
represent either profit or loss which proportionately be credited or
debited respectively to the other party's account. The amount due
to other parties will then be remitted to them by the party
recording account of joint venture dealings.
But it may so happen that each party to the joint venture might
effect transactions independent of others. Under such a case each
party would record in his own books the transaction that has
entered into on joint account. That it has own book, each will open
one, ``Joint Venture Account with such and such person.'' He will
debit the joint venture account and credit cash for goods purchase
and expenses incurred by him on joint venture. If he supplies goods
from his own stock, he will debit joint venture account and credit
goods or sales account. When the venture is complete each party
will sent to the other details of the transactions effected by him and
as they appear in the joint venture account in his own books. On
receipt of such a statement the other party will make suitable
entries indicated below.

The joint venture account in each party's books, will be debited with
the cost of the goods purchased and expenses incurred by the
other party or parties, the corresponding credit being given to the
personal account of the other party or parties. Similarly, the other
party's account will be debited with sale proceeds received by him,
the corresponding credit being given to the joint venture account.
The joint venture account will not be closed in each party's books
the balance indicating either profit or loss which will be credited or
debited proportionately to the other party's personal account and
to his own profit and loss account (his share). The balance on the
personal accounts of the other parties will then indicate their
relative position with each other.

Where No Separate Set of Books is Maintained

(A) Recording in the Books of Each Party?

Under this method Co-Venture will prepare two accounts namely (i)
Joint Venture Account and (ii) The Personal Account of other Co-
Ventures.

Notes : (a) Joint Venture account, being a nominal account, is

prepared to find out profit of loss of the Venture. Personal
account(s) of the other Co-Venture's) is prepared to find out the
amount due from or amount due to him.

(b) It must be made clear that each Co-Ventures has his own
separate business and these transactions are in addition to what he
records in respect of his independent business.

A summary of accounting entries in respect of joint venture

transactions in the books of any co-venture is given below :—

(a) Transaction of the person recording the same.

 1. Cash Contributed or Goods Purchased in Cash for Joint Venture
:

Joint Venture Account Dr.

To Cash/Bank Account
2. Goods Supplied from own stock for Joint Venture

Joint Venture Account Dr.

To Purchase Account
Note : If the goods are supplied at a price other than cost price,
then Sales Account will be credited.

3. For Paying Expenses

Joint Venture Account Dr.

To Cash/Bank Account

4. For Sale of Goods for Cash

Cash Account Dr.

To Joint Venture Account

5. For Sale on Credit

Debtor's Account Dr.

To Joint Venture Account

6. Cash received from Debtors

Cash/Bank Account Dr.

To Debtors Account

7. Discount allowed or bad debts

Joint Venture Account Dr.

to Debtors account

8. Cash or Bills Receivable received from other Co-Venturer(s)

Cash/Bank/Bills receivable Account Dr.

To (Other) Co-Venture's Personal Account

9. Cash or Bills Payable given to Co-Venture

(Other) Co-Venture's Personal Account Dr.

To Cash/Bank/Bills Payable Account

10.Commission/Salary etc. Receivable

Joint Venture Account Dr.

To Commission/Salary etc. Account

11. Unsold Stock of Joint Venture taken into Stock

Purchase Account Dr.

To Joint Venture Account
 (b) Transaction of the other Co-Venturer.

12.Cash Contributed or goods contributed or goods purchased for

Cash or on Credit for Joint Venture.

Joint Venture Account Dr.

To (Other) Co-Venturer's Account

13.Any Expenses paid or discount allowed by him or any bad debts

incurred by him for joint Venture.

Joint Venture Account Dr.

To (Other) Co-Venture's Account

14.Goods sold for cash or on Credit by other Co-Venturer(s).

(Other) Co-Venturer's Account Dr.

To Joint Venture Account

15.Commission or Salary payable to Co-Venturer

Joint Venture Account Dr.

To (Other) Co-Venturer's Account

16.Unsold Stock taken by Co-Venturer(s)

(Other) Co-Venturer's Account Dr.

To Joint Venture Account

17. Profit or Loss on Joint Venture

(c) (i) For Profit
Joint Venture Account Dr.
To Profit and Loss Account
(For the person recording the transaction)
To (Other) Co-Ventures Account
(For the share of other Co-Venturer)

(ii) For Loss

Profit And Loss Account Dr.
(For the share of self)
(Other) Co-Ventures Account Dr.
(For the share of other co-venturer)
To Joint Venture Account

(c) Final Settlement of account

(i) For Cash or Bill Receivable received

Cash or Bills Receivable Account Dr.

To (Other) Co-Venturers Account

(ii) For Cash or Bills Payable Given

(Other) Co-Venturers Account Dr.

To Cash or Bills Payable Account

Important :
(a) When any co-venturer receives cash from debtors for credit
sales there is no entry in the books of other Co-Venturers(s).
 (b) When one Co-Venturer allows cash discount to and/or
incurs bad debts on debtors, the entry is :

Joint Venture Account Dr.

To (other) Co-Venturer's Account

(c) The procedure adopted for valuing the closing stock is

similar to the valuation of consignment stock. Accounting
treatment for unsold stock is :

(i) When Joint Venture account is only closed (though Joint

Venture business is continuing), closing stock is credited
to Joint Venture Account as By balance c/d.

(ii) When Joint Venture Account business is finally closed the

unsold stock is taken over by co-venturer(s) at agreed
value. But if the examination problem is silent as to its
distribution by co-ventures at agreed values it should be
distributed in the profit sharing ratio by debiting the
purchase account and co-venturer's account and
crediting the Joint Venture Account.

Example of a Joint Venture where no Separate Set of Book's are

Needed :

Illustration-1
A of Ahemdabad and B of Bombay enter into a joint venture to
consign 100 bales of cotton to C of Ceylon to be sol by the latter on
the joint risk of A and B, sharing in proportion of 3/5 and 2/5
respectively. A sends 60 bales at Rs.1,3000 each, paying freight and
other charges amounting to Rs.900 B sends 40 bales at Rs.1,250
each and pays for freight and other charges Rs.800. All the bales are
sold by the consignee for rs.1,50,000 out of which he deducts
Rs.1,600 for his expenses and his commission at 3 per cent. He
remits a bank draft for rs.70,000 to A and the balance to B in a
separate draft.

Give the necessary ledger account to record these transaction in the

books of A and B.

A's Ledger
Dr. Joint Venture account with B Cr.
Rs. Rs.
To Goods A/c 78,000 By cash (recd. from C) 70,000
To Cash (Exps.) 900 By B (recd. from C*) 73,900
To B (Goods) 50,000
To B (Expenses) 800
To B (Profit) 5,680
To P & L A/c 8,520
1,43,900 1,43,900
*It is never called as B's Capital A/c since A and B are not partners.

Dr. B's A/c Cr.

Rs. Rs.
To Joint Venture A/c By Joint Venture A/c
(Cash recd. from C) 73,900 —Goods 50,000
By Joint Venture A/c—exps. 800
By Joint Venture A/c—Profit 5,680
By Balance c/d 17,420
73,900 73,900
To Balance b/d 17,420
Rs.
Total Sales By C = 1,50,000
Less=his expenses 1,600
Less-his commission 3% of 1,50,000 4,500
6,100
Balance 1,43,900
Less amount sent to A 70,000
*Amount received by B 73,900
B's Ledger
Dr. Joint Venture Account with A Cr.
Rs. Rs.
To Goods A/c 50,000 By Cash (received from C) 73,900
To Cash (Exps.) 800 By A (received from C) 70,000
To A (Goods) 78,000
To A (Expenses) 900
To A (Profit) 8,520
To P & L A/c 5,680
1,43,900 1,43,900
Dr. A Cr.
To Joint Venture A/c (From C) 70,000 By Joint Venture A/c—Goods
78,000
To Balance c/d 17,420 By Joint Venture A/c—Exps. 900
By Joint Venture A/c—Profit 8,520
87,420 87,420

Illustration-2
A of delhi and B of Bangalore entered into a Joint Venture for
purchases and sales of one lot of Mopeds. The cost of each Moped
was Rs.3,000 and the fixed retail selling price Rs.3,000 The following
were the recorded transactions :
2002
Jan. 1
A Purchase 100 Mopeds paying Rs.72,000 in cash on account.
A raised a loan from Canara Bank for Rs.50,000@ 18% p.a. interest,
repayable with interest on 1.3.2002.
A forwarded 80 Mopeds to B incurring Rs.2,880 as forwarding and
insurance charges.
Jan.7
B received the consignment and paid Rs.720 as clearing charges.
Feb.1
A sold 5 Mopeds for Cash
B sold 20 Mopeds for Cash
B raised a loan of Rs.1,50,000 from Union Bank repayable with
interest at 18% p.a. on 1.3.2002.
B telegraphically transferred Rs.1,50,000 to A incurring charges of
Rs.50 A paid balance due for the Mopeds.
Feb. 26
A sold the balance Mopeds for Cash
B sold the balance Mopeds for Cash
A paid selling expenses Rs.5,000
B paid selling expenses Rs.20,000
March. 1
Accounts settled between the venturers and loans repaid. Profit
being appropriated equally.
You are required to show :
(1) The Memorandum Joint Venture Account.
(2) Joint Venture with B Account in A's Books.
(3) Joint Venture with A Account in B's Books.
You are to assume that each venturer recorded only such
transactions concluded by him.
Solution :
Memorandum Joint Venture Account
For the period between Jan 1 to March 2002
To A Rs. By Sales Rs.
Cost of Mopeds 3,60,000 A (20 × 4,500) 90,000
Forwarding and Insurance 2,880 B (80 × 4, 500) 3,60,000
Interest on Bank Loan 1,500
Selling Expenses 5,000
To B
Clearing Charges 720
Interest on Bank Loan 2,250
Sundry Expenses
(Telegraphic transfer Charges) 50
Selling Expenses 20,000
To Net Profit
A 28,800
B 28,800 57,600
4,50,000 4,50,000
Books of `A'
Joint Venture with B Account
To Bank (Part payment of Cost) 72,000 By Bank (Sale proceeds)
22,500
To Bank (Forwarding Charges) 2,880 By Bank (Remittance from B)
1,50,000
To Bank (Balance cost of purc- By Bank (Sale proceeds) 67,500
hase) 2,88,000 By Bank (Cash recovered 1,58,180
To Bank (Selling expenses) 5,000 in settlement)
To Bank (Interest on Bank Loan) 1,500
To Profit and Loss A/c
(Share of profit) 28,800
3,98,180 3,98,180
Books of `A'
Joint Venture with A Account
To Bank (Clearing Charges) 720 By Bank (Sale
To Bank (Remittance plus telegraphics proceeds 20 Mopeds) 90,000
transfer charges) 1,50,050 By bank (Sale proceeds of 2,70,000
To bank (Selling expenses) 20,000 60 Mopeds)
To Bank (Interest on Bank Loan) 2,250
To Profit and Loss Account
(Share of profit) 28,800
To Bank (payment in settlement) 1,58,180
3,60,000 3,60,000
Separate Books for Joint venture :
A complete set of separate books is opened to record the joint
venture transactions when buying and selling on account of joint
venture is managed by one of the parties and all the transactions
are recorded at the place of business. In this case the recorded of
transactions does not differ in any way from ordinary partnership
transactions. The parties to the joint venture usually contribute their
share of money to carry out the joint venture dealings. This money
is put in a joint banking account. The parties' personal accounts are
credited and the joint banking account debited. The joint venture
account will be debited with the cost
of goods purchased, and expenses incurred and for this the joint
banking A/c will be credited. Joint banking account is debited. The
joint venture account will be debited with the cost of goods
purchased, and expenses with the sale proceeds and the joint
venture A/c will be credited. Finally, if any stock remains unsold, it
may be taken over by one of the parties. The party's A/c will then
be debited and the joint venture A/c will be credited with the
agreed value. The joint venture A/c will then be balanced and the
profit or loss will be transferred to the parties' personal accounts.
The amount due to each will be paid out from the joint bank A/c
and thus the books of account will be closed.

``Summary of Journal Entries''

(1) Amount contributed or invested by the Co-Venturers.

Joint Bank Account Dr.

To Co-Venturer's Capital Accounts (Individual)

(2) Goods or any other item contributed by a co-venturer or

expenses paid by him.

Joint Venture Account Dr.

To Co-Venturer's Capital Account

(3) For purchase of goods for cash.

Joint Venture Account Dr.

To Joint Bank Account
(4) For purchase of goods on Credit.

Joint Venture Account Dr.

To Creditor's (Suppliers) Accounts

(5) For expenses on Joint Venture.

Joint Venture Account Dr.

To Joint Bank Account
(6) For good sold (Cash).

Joint Bank Account Dr.

To Joint Venture Account
(7) Sale on Credit

Debtor's (Consumers) Account Dr.

To Joint Venture Account

(8) Payment to creditors in cash or issue Bills payable.

Creditors Account Dr.

To Joint Bank Account

To Bills Payable Account

(9) Cash or Bills Receivable received from debtors.

Joint bank Account Dr.

Bills Receivable account Dr.
To Debtor's Account
(10) Any Commission, salary, interest etc. payable to any Co-Venturer.

Joint Venture Account Dr.

To Co-Venturer's Account

(11) Part of the stock taken by Co-Venturer

Co-Venturer's Account Dr.

To Joint venture Account

(12) For profit on joint venture.

Joint Venture Account Dr.

To Co-Venturer's Account

(13) For loss on joint venture.

Co-Venturer's Account Dr.

To Joint venture Account

(14) Settlement of the account of each party.

Co-Venturer's Account Dr.

To Joint Bank Account
Note: Discount received should be Debited to Creditor's account
and Credited to Joint Venture Account. Similarly discount allowed
and bad debts should be Debited to Joint Venture Account and
Credited to Debtor's Account.
c) Differentiate between:

i) General Commission and Del Creder Commission

Commission or Consignee's Remuneration
When the goods are sold by the consignee, he is paid a commission
for his services at a fixed rate on the proceeds of the goods sold by
him. In addition to this commission, he is to be reimbursed for all
expenses incurred by him in connection with the consignment sales.
Usually these expenses are in the nature of dock charges, custom
duties, carriage, godown rent, advertisement, insurance of the
goods while in his possession etc.
Del Credere Commission. Usually the consignor advises the
consignee to sell the goods consigned to him for cash only,
because if such goods are sold on credit by the consignee and if
any amount becomes irrecoverable from the debtors the loss will
fall upon the consignor. As the consignee acted as an agent only in
effecting the sales, he does not become responsible for any debts.
But sometimes an arrangement is made between the consignor and
the consignee whereby the later guarantees payment and
undertakes responsibility for bad debts. For this the consignee
receives an additional commission known as ``Del Credere
Commission'' on the total sales. When del-credere commission is
given to the consignee, the consignee will make payment to the
consignor, whether he himself receives the payment or not from the
purchaser(s).

ii) Normal Loss and Abnormal Loss

Normal and Abnormal Loss
Goods sent on consignment does not become the property of
consignee as he has not bought them. The ownership of goods
remains with the consignor until they are sold, so the goods appear
as inventory in the books of the consignor, not the consignee.
The consignee tries to sell the goods according to the instructions of
the consignor. When the goods are sold he will deduct his expenses,
commission,etc., from the sale proceeds and remits the balance to
the consignor. If the goods are destroyed, consignee will not be
responsible. Its burden will fall on the consignor. There are two types
of losses that can occur in consignment :

1] Normal Loss

The normal loss means loss which is inherited and can not be
avoided. It should also be considered while valuing the closing stock.
To ascertain the cost per unit after the normal loss, we use the
following formula:
Cost per unit = (Total cost+ Expenses incurred) /(Total quantity –
Normal loss)
For example: If a certain amount of oranges are consigned, some of
them will be destroyed in loading and unloading whereas some of
them will not be in a state to be sold. Suppose, 10,000 oranges were
sent to the consignee at ₹30 per kg and freight of ₹60,000. It is
known that there would be a normal loss of 10%.
Cost per kg = (300000 + 60000) / 9000 (i.e. 10000-10% of normal
loss) = ₹40
If unsold quantity is 500 its value will be (500*40=20000).
Note: No entry is recorded for normal loss in the books.
 2] Abnormal Loss

Some losses are accidental or can be caused by carelessness.

Example: by theft or loss by fire, flood, earthquake, war, accidents in
transit, etc. Such losses are more or less abnormal. Suppose a part of
goods is stolen, now this will reduce the value of stock and therefore
profit on consignment. Now the best thing is to find out the cost of
goods that are lost. After finding out the value, consignment a/c is
credited and abnormal a/c is debited and then transferred to profit
and loss a/c, so as to arrive at correct profit or loss of consignment.
Some businessmen also take an insurance policy in respect of goods
sent or received. Such a policy is obtained only in respect of
abnormal loss caused to goods.
Q.5. “Incomplete Record system is unscientific, incomplete, inaccurate
and unsystematic.” Explain

Ans: Incomplete record system, also known as single entry system is

not a standard practice like double entry system based on dual
aspect concept. Double entry system is based on scientific dual
aspect concept that makes it possible to scientifically locate any
error arising due to emission, omission or clerical mistake. Two sides
of the trial balance will not tally if there is any error in double entry
system. However, there is no as such advantage in using single
entry system or incomplete record system. These records are
maintained by accounting novice people or small traders who are
not officially required to maintain books of account.
Considering above differences with double entry system, we can
observe following limitations of incomplete record system:
1. It is an incomplete and unscientific system.
2. Automatic check and reconciliation of accounts are not possible.
3. Correct excess or diminution of income over expenditure in non-
trading concerns and correct profit or loss in business houses
cannot be ascertained.
4. As the records of assets and liabilities are not properly maintained,
correct financial position may not be known.
5. The system is not reliable, Banks and income tax authorities etc.,
have no confidence in it.
6. As both the aspects are not recorded, frauds can more easily be
committed.
7. Trading results and financial positions of different periods cannot be
compared to arrive at useful results for the progress of business.
Features of Incomplete Records:
The features of incomplete records are as under:
(i) Unsystematic Method:
This is an unsystematic method for recording business transactions
in the books of accounts. There are no rules and principles which
are applicable for recording business transactions in the case of
incomplete records.
(ii) Mixed System for Recording Business Transactions:
Accounting from incomplete records is a mixed system of recording
business transactions in which some transactions are recorded as
per double entry system and for certain transactions only a single
entry is made in the books of accounts. In some cases no recording
is made in the books of accounts.
(iii) Lack of Uniformity:
The system of recording business transactions under this
mechanism differs from organization to organization as recording is
made as per their need and convenience.
(iv) Personal Transactions are Mixed up with Business Transactions:
Personal transactions of the owners are usually mixed up with
business transactions. Sometimes it is very difficult to segregate the
business expenses and personal expenses of the owners. For
example, maintenance expense of a car which is used by the owner
for business and domestic purposes both.
(v) Based on Estimates:
The profit is based on estimation, hence cannot be relied upon.
Similarly, the position of assets and liabilities does not show true
and fair view of the business concern.
(vi) Highly Flexible:
This mechanism is not based on any set rules, principles and
accounting standards, so it can be modified and changed as per the
need and availability of time.
(vii) Suitable for very Small Business Entities:
Though the information provided by this system is inaccurate and
not authentic yet this system is time and cost saving, hence adapted
by those small business entities that are not bound to keep records
of business transactions as per double entry system.
(viii) Mainly Personal Accounts are Maintained:
Under this system, mainly personal accounts are maintained and no
record of real and personal accounts is maintained.
Advantages of Incomplete Records:
Following are some advantages of incomplete records:

(i) Simple and Time Saving:

This method is time saving in the sense that only a few records are
maintained under such system.
(ii) Cost Effective:

This method is less expensive as compared to keeping records as

per double entry system.

(iii) Convenient:

This method is very convenient in the sense that no rules and

principles are to be followed.

(iv) Highly Flexible:

This mechanism is not based on any set rules, principles and

accounting standards, as such it can be modified and changed as
per the need and availability of time.
Limitations of Incomplete Records:
The limitations of incomplete records are as under:

(i) Arithmetical Accuracy cannot be Checked:

Under this method all ledger accounts related to real, personal and
nominal are not maintained as such trial balance cannot be
prepared. Hence, arithmetical accuracy cannot be checked.

(ii) Figures of Profits cannot be Relied Upon:

The profit is based on estimation, hence cannot be relied upon.

(iii) True and Fair View of the Business Concern not Shown:

The position of assets and liabilities does not show true and fair
view of the business concern as very often recording is made on the
basis of memory and sometimes on the basis of information
available.

(iv) Improper Analysis of Profitability and Solvency:

In the absence of complete books of accounts, based on double

entry system, proper analysis of profitability and solvency cannot be
made. Hence, it may cause a great problem in raising loans from
financial institutions.

(v) Errors and Frauds not Detectable:

Under this system it is very difficult to detect errors and frauds

because various checks which are imposed by double entry system
are not available.

(vi) Users’ Dissatisfaction:

Under this system, legal requirements cannot be complied with.

Hence, taxation authorities and other governmental agencies do
not satisfy with the incomplete information provided by single entry
system.