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Accounting For LCs

This is a helpful note to account for Letter of Credits issued in an organisation, when they are issued and paid, the entries that need to be passed are mentioned in here.

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sriramnayak
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299 views2 pages

Accounting For LCs

This is a helpful note to account for Letter of Credits issued in an organisation, when they are issued and paid, the entries that need to be passed are mentioned in here.

Uploaded by

sriramnayak
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as TXT, PDF, TXT or read online on Scribd
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SOURCE 1

(1) When Buyer opens LC with its bank

Dr. Supplier Account (Accounts Payable)

Cr. Bank LC Establishment (or Bills Payable)

(2) When the bank has earmarked LC Margin

Dr. Cash Margin held on LC (asset)

Cr. Bank Account

(3) When Buyer accepts LC liability (when the goods have reached buyer's port and
bank has informed buyer of arrival advice)

Dr. Bank LC Establishment (or Bills Payable)

Cr. Bank LC Acceptance

(4) Amount settled/paid to party

Dr. Bank LC Acceptance

Cr.Bank Account

(6) Inventory received

Dr. Inventory

Cr. Supplier Account (Accounts Payable)

(5) LC Commission charged by bank

Dr. LC Commission (Expenses)

Cr. Bank Account

The net effect of above is:

Dr. Inventory

Cr. Bank Account

(purchase of inventory)

and

Dr. LC Commission (Expenses)

Cr. Bank Account

(LC commission charged by bank)


SOURCE 2(1) Dr. LC MarginCr. Bank Account (2) Dr.InventoryCr.Supplier (3) Dr. LC
CommissionCr. Bank (4) Dr. Bank LC Commission (5) Dr. SupplierCr. LC Margin I
would be grateful if you tell me which of these is correct and/or are there any
wrong entries ?

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