Joint Venture Accounting follows which concept:a)Accrual Conceptb)Going Concern Conceptc)Cost Conceptd)Cash BasisCorrect answer is option 'D'. Can you explain this answer?

Question

Answer

We know that joint venture is a short duration business entered into by two or more persons jointly. It is also regarded as temporary partnership between two or more persons without using the firm's name.Such firms do not follow accrual basis of accounting rather cash basis of accounting is followed as going concern assumption is not followed in case of joint ventures. It is the liquidation approach that is followed for recording joint venture accounting.

Answer

Because all amount paid by coventurers and all transactions are created by cash and bankA/c.

Answer

The correct answer is option 'D' - Cash Basis.

Joint Venture Accounting refers to the accounting of a business arrangement in which two or more parties agree to come together and undertake a specific business activity for a specified period of time. Each party contributes resources and shares the risks and rewards of the venture.

The cash basis of accounting recognizes transactions only when cash is received or paid. It does not consider the timing of revenue or expenses but focuses solely on the actual flow of cash. Under the cash basis, revenue is recognized when cash is received, and expenses are recognized when cash is paid.

Explanation:

Joint Venture Accounting typically follows the cash basis of accounting for several reasons:

1. Simplicity: The cash basis is relatively simple and easy to understand. It does not require complex calculations or adjustments for accruals or deferrals.

2. Real-time information: Joint ventures often involve smaller-scale or short-term projects where cash flows are more significant. Using the cash basis allows for immediate recognition of cash inflows and outflows, providing real-time information on the financial position of the joint venture.

3. Cash control: Joint ventures may have limited resources, and cash control becomes crucial. By using the cash basis, the joint venture partners can closely monitor the cash inflows and outflows, ensuring efficient cash management.

4. Aligning interests: Joint ventures are typically formed to achieve specific objectives and share profits or losses. Using the cash basis aligns the accounting treatment with the actual cash flows, ensuring that the partners' interests are accurately represented.

However, it is important to note that while the cash basis is commonly used in joint venture accounting, it may not provide a complete and accurate picture of the joint venture's financial performance. For a more comprehensive analysis, accrual accounting may be necessary, which recognizes revenue and expenses when they are earned or incurred, rather than when cash is received or paid.

In conclusion, Joint Venture Accounting typically follows the cash basis of accounting as it provides simplicity, real-time information, cash control, and aligns interests. However, it is important to consider the limitations of the cash basis and use accrual accounting when necessary for a more comprehensive financial analysis.

Answer

Going concern concept

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