Four joint operators agree to an arrangement in which they have an equal share in a joint operation that produces sunflower oil. The work undertaken in setting up the joint operation cost $200 000 and each operator contributed in cash. Each operator will need to recognise the following accounting entry:
A) DR Cash in JO $50 000 CR Cash $50 000
B) DR Inventories in JO $50 000 CR Cash $50 000
C) DR Cash in JO $200 000 CR Cash $200 000
D) DR Cost of joint operation product $200 000 CR Cash $200 000

Question

Quizplus · Accepted Answer

Each operator contributed cash to set up the joint operation, so they would need to recognize this contribution as a cash inflow to the joint operation. Option A correctly reflects this by debiting Cash in JO (an asset account) and crediting Cash (a liability account) for the same amount, indicating that each operator contributed $50 000 in cash. Option B is incorrect as it suggests that an inventory was purchased, which is not stated in the scenario. Option C and D are incorrect as they do not reflect the actual cash contribution made by each operator.

Four Joint Operators Agree to an Arrangement in Which They