TeachMeFinance.com - explain Joint account
Joint account -- When two or more speculators join in a
transaction for their mutual benefit or risk they are in joint
historic accounting definition (British)...
Joint Accounts -- is the name given to accounts dealing with transactions where two or more persons are concerned as principals and where an agreement exists to divide the profit on such transactions or to meet the loss concerned in proportions which have been agreed upon previously. The subject-matter of joint accounts may be divided under two heads
(1) Joint consignments.
(2) Joint ventures.
JOINT CONSIGNMENT. A joint consignment is the sending of goods by a consignor to a consignee on the understanding that the consignee shall sell the goods at the best price obtainable, the price so obtained, either by public sale or by private treaty, being brought into the Joint Consignment Account. The balance on the account, after charging against the price realised, the expenses of the consignor and the consignee, and the interest involved, is divided proportionately, if a profit, or borne proportionately, if a loss, by the two or more parties concerned. It will be appreciated, therefore, that the method of keeping Joint Consignment Accounts varies from that necessary in the case of ordinary Consignment Accounts. In the case of an ordinary consignment, it is the duty of the consignee to sell the goods comprised therein at the best price obtainable.
He is then entitled to deduct from the gross proceeds all the expenses to which he has been put, and also his commission, and to account to the consignor for the balance, known as the " net proceeds." The consignee, therefore, incurs no risk or liability except that which may be incurred by his own negligence. The expenses to which the consignor has been put affect him in no way, and he is not entitled to have particulars of them nor of the profit or loss resulting from the consignment, his profit being made up solely by the agreed commission which he charges by way of a percentage on the gross price realised.
In the case of a joint consignment the position is different. The relations of the parties are in the nature of a partnership, and the consignee is entitled to details of the cost price of the goods, the expense of freight, insurance, and any othe'r charges which are to be charged against the Joint Account and to a complete account of the result of the transaction.
For his profit he must rely entirely on the result of the transaction and is not entitled, therefore, to make the percentage charge for commission as in the case of an ordinary consignment. As in the case of consignment accounts, it is necessary to have some knowledge of the procedure connected with the sending of consignments and of the method of dealing with the goods comprised in a consignment, since some knowledge of the charges which have to be paid, and of the usual procedure, is essential before a proper system of recording transactions can be put in. It is therefore assumed that study has been made of the details and principles set out in the article dealing with CONSIGNMENT ACCOUNTS appearing in this work.
JOINT CONSIGNMENT ACCOUNTS. In order properly to record the result of a joint consignment, the duty of keeping the complete accounts relating to the transaction should be given to one of the parties concerned, and it is convenient, in order that an early settlement can be made, that the accounts should be kept by the consignee as he will be the person who will receive the amount realised by the sale of the goods comprised in the consignment.
He will open in the books a Joint Consignment Account, an account headed with the name of his partner in the joint consignment and an account headed with his own name. After the consignor has dispatched the goods he will send to the consignee an account of the charges which he has incurred and an invoice showing the cost price of the goods.
On receipt of these details the consignee will put through the books a Journal entry debiting the Joint Consignment Account with the amounts so detailed and crediting the consignor.
When the consignee takes possession of the goods by paying all charges such as freight, insurance, wharf charges, etc., he will debit up such charges to the Joint Consignment Account, crediting his own account in the books.
On the sale of the goods he will debit any further charges incurred such as brokerage, advertising and sale charges, etc., in the same way, and he will credit the Joint Consignment Account with the amount of the proceeds when he receives such amount, debiting his own account.
The sale being completed, the date to which the account is to be brought down is known.
Each of the personal accounts is ruled with an extra column on each side, in addition to the usual money columns, and interest is calculated from the date of the disbursement or from the date of the receipt in each case to the date at which the account is made up, and the amount of interest to be charged or allowed is entered in the interest column on each side. The balance of the interest columns on each account is inserted to the debit or the credit of the personal account in each case, the double entry being completed by debiting or crediting the Joint Consignment Account.
The balance of the Joint Consignment Account then represents the profit or loss on the transaction and will be transferred to the debit or credit of the personal accounts in the agreed proportions. The Joint Consignment Account will thus close, and similar but opposite balances will remain on the personal account of each party showing the amount to be received from or paid to the other party.
In the case of a Joint Consignment Account, by whichever partner it is kept, it is in every way better to keep the accounts concerned entirely separate from the books of his general business, with a separate Cash Book and a separate Ledger. If, however, the consignee incorporates the joint accounts in his own books there will appear in his Ledger an account in the name of his partner and the Joint Consignment Account only. No account in his own name will appear. In such a case, the amount of interest to be debited or credited to the Joint Account in respect of amounts paid out or received by himself will have to be calculated and put through the Journal, the proper proportion of profit or loss affecting himself being transferred from the Joint Account to his Trading Account or Profit and Loss Account.
JOINT VENTURES. Although joint consignments are very commonly known as joint ventures or joint adventures, their proper designation is joint consignments. Joint venture is the term used to imply any partnership existing between parties for the purpose of carrying out any transaction or speculation jointly on the understanding that such partnership embraces that transaction or speculation only. The partnership relation is automatically determined on the termination of the venture, or the achievement of the object for which the partnership was created and the settlement of all accounts between the partners.
It is unusual to find any firm-name adopted by the parties carrying out the venture, since this might be held to imply a general partnership between the parties. It is usual to give the management of the venture to one of the parties and to constitute him the accounting party also, and to authorise him to enter into all necessary arrangements or contracts in his own name.
The method of keeping the accounts of a joint venture is similar to that in the case of joint consignments, the personal account of each partner being ruled with interest columns, the Joint Venture Account being debited with the expenses incurred and credited with the proceeds or profits, and the account of each partner being debited with amounts received by him or credited with payments made by him, or the agreed value of contributions by him in kind.
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