Karen Brown, Senior Principal Product Manager for JD Edwards, recently spoke about how to manage joint ventures in JD Edwards. Brown covered Joint Venture Management functionality that is available in JD Edwards EnterpriseOne Financials.
With the joint venture management system, JD Edwards has enabled managing partners (and non-managing partners who have received transaction details from the managing partner) to define the joint ventures, manage the division of interest and partner contributions, and track and manage budgets, costs, revenue, and cash. They can allocate costs and/or calculate overhead expenses. The managing partner can distribute expenses, overhead, and revenue to partners. They can also draw on cash calls and create invoices, vouchers, and journal entries for the distributed transactions. Finally, they can create financial statements and reports and inquire on all Joint Venture data.
JD Edwards Joint Venture Management was created for companies that need partners to help fund their projects. A joint venture is not industry-specific. Some of the many industries using joint ventures include engineering and construction, oil and gas, and real estate.
The business process that is required for the managing partner includes incurring expenses, receiving revenue, and managing cash. On a periodic basis, they will process the information for the joint ventures. First, they will process allocations and overhead to be distributed. When all of those are ready, they will take the expenses, overhead, and revenue and distribute them to the partners based on the division of interest assigned to each partner. Once that is ready, they can create invoices, vouchers, and journal entries for the distributed transactions. Finally, they will do financial reporting associated with the joint venture.
That is the basic business process supported by the solution. This solution is available in JD Edwards EnterpriseOne Applications Release 9.2 and is delivered as part of the JD Edwards EnterpriseOne Financials module with no Tools release dependency.
So, how does Joint Venture Management fit in with JD Edwards? You can manage your joint venture operations with standard JD Edwards EnterpriseOne products. You can do all of your standard operations with standard products and your joint venture sits on top of that, as pictured below.
Example of How to Manage a Joint Venture
Let’s use the following example to explain the steps of the process:
Acme Company needs partners to help fund a project in China. The joint venture is formed between the partners. Acme will be the managing partner and handle all the financials for the joint venture. They will:
- Pay bills and receive revenue
- Distribute expenses and revenue to partners
- Provide financial reports for the joint venture to the partners
At each step in the business process, the solution provides value.
When incurring expenses, receiving revenue, and managing cash, you will incur direct costs such as labor and material and indirect costs such as utility bills, payroll, etc. Your revenue will include payments from customers or tenants. The managing partner will need to manage this cash. Usually, at the beginning of a joint venture, the partners will contribute cash into the joint venture. On a monthly basis, the managing partner manages the cash on hand. Periodically, when the cash starts to get low, they will ask for additional contributions from the partners.
Sharing the cost of managing the joint venture with your partners can be handled in one of two ways. Both of them will result in journal entries to be distributed to the partners.
- Overhead: You can take a portion of your indirect costs such as utilities, rent, accountant salary, and calculate the overhead.
- Allocation: Take the full bill and allocate it to multiple joint ventures, or projects within a joint venture and allocate costs.
Distribution of expenses, overhead, and revenue to partners occurs next in the process. For the example given, the distribution would look like this:
Next, process invoices, vouchers, and journal entries for distribution transactions by first creating journal entries for the managing business unit. Next, invoice each partner for expenses and overhead. This step could include drawing against partner cash calls (cash contributed at the beginning of the joint venture) or creating an invoice from which to print an invoice or billing statement. Finally, pay each partner for revenue received by creating and paying a voucher.
Joint Venture Financial Reporting takes place last. This is important for both the managing partner and the remaining partners in a joint venture. Distribution Ledgers provide specific ledger types for distributed transactions to enable financial reporting.
How to Define Joint Ventures in JD Edwards
In order to define the joint venture for JD Edwards, you will use the Joint Venture Master.
First, you need to define the following units:
One of the items available for Joint Venture Management is the Legal Entity Information. The legal name is attached to an address number and can now be up to 80 characters. It is date effective, in case a project or company name changes. It includes the entity type. This could be a partner or a project. If a partner, the minimum amount can be included for vouchers. There are also special payment terms for partners. Additionally, there is a space to describe an extended legal name.
You can also identify which accounts are available to be distributed to the partners in your joint ventures with a checkbox.
The joint venture information should be entered under Edit Joint Venture.
Creating the joint venture hierarchy will allow you to view the structure of your joint venture.
For calculating overhead, there is a robust feature in Joint Venture Management. JD Edwards has different calculation methods that you can use when creating rules for your joint venture. Once determined, you can assign those overhead rules at any level within the hierarchy you constructed for the joint venture.
Division of interest occurs next, according to the assignment rules. It is extremely flexible within JD Edwards. For our example, the division of interest might look like this:
When it comes to expenses, revenue, and cash management, all of this is handled by existing processes in JD Edwards. Managing cash calls includes creating a cash call, invoicing partners, and the ability to void, transfer, or close cash calls.
There are multiple overhead calculation methods, detailed below.
Calculate the overhead based on rules. Review and update added amounts.
Finally, create journal entries to be distributed by batch process.
Distributing Expenses for Joint Ventures in JD Edwards
First, you will load the JVM Account Ledger. Then, assign the division of interest (DOI) and manage the account ledger if desired. Once they are ready, distribute the transactions. All four of these actions will be done with a batch process. Then, you can manage distributed transactions, including viewing a summary of distributions by partner with totals. You can also view a detail list of distributions by partner and change the status of an incomplete transaction.
Processing Invoices, Vouchers, and Journal Entries
Follow the steps laid out below:
Drawing on cash calls, creating invoices, vouchers, and journal entries, and printing invoices are all batch processes. You can schedule them. You will get a special invoice specifically for the joint venture. This includes a Summary page by business unit and project associated with the joint venture. It also includes a Details page.
The billing report is a summary showing all activity, including expenses, revenue, and cash calls. It also has a page for cash call summary so that the partner can view the balance on their cash call.
Once this is complete, you can manage distribution documents.
For Joint Venture Financial Reporting, you will load the distribution ledgers. This takes the distributed transactions in the tables and adds them to the FO911 and FO902. It is a batch process, and data can be brought in from any ledger.
The following reports and more are available:
To learn more about managing joint ventures in JD Edwards, check out Brown’s presentation and the additional resources attached below.