ACCOUNTING FOR LETTER OF CREDIT


 Letter of credit :-  It is a document from a bank warranting that a seller will receive payment if the delivery conditions related to sale have been met. In the event that the buyer is unable to make payment on the purchase, the bank will cover the outstanding amount. LC is drawn in most international transactions where the parties in this transaction are unknown to secure the payment from the buyer the seller will ask for letter of credit.

Parties in L C :- Buyer, Buyer Bank, seller, seller bank and carrier

Stages:-

The seller and buyer after conclusion of contract the buyer bank will supply letter of contract to seller


Seller will consign goods to carrier in exchange of bill of lading



Seller will provide bill of lading to seller bank against the payment from buyer bank , after this seller bank will provides the bill of lading to buyer bank and from buyer bank it will delivered to buyer






Buyer provides bill of lading to carrier in exchange of goods







Accounting for letter of credit in the books of seller


When Buyer opens LC with its bank

SL.NO
PARTICULAR
DEBIT
CREDIT
1
Creditor  A/c      Dr
         To SBI bank LC  A/c
1000000

1000000

Debit :- Creditor A/c is current liability and Credit SBI bank LC A/C is Current Liability 

When buyer pays LC margin

SL.NO
PARTICULAR
DEBIT
CREDIT
1
Cash margin for LC A/c      Dr
         To Bank A/c
50000

50000

Debit :- Cash margin for LC A/c is current asset. 

When Buyer accepts LC liability (when the goods have reached buyer's port ) and pays the amount.

SL.NO
PARTICULAR
DEBIT
CREDIT
1
SBI bank LC A/c   Dr
         To Bank A/c
         To Cash margin for LC A/c
1000000

950000
 50000

Goods received

SL.NO
PARTICULAR
DEBIT
CREDIT
1
Purchase Import A/c   Dr
         To Creditor A/c
1000000

1000000

LC commission paid by buyer to bank

SL.NO
PARTICULAR
DEBIT
CREDIT
1
SLC A/c commission    Dr
         To Bank A/c
10000

10000


Comments

  1. This comment has been removed by a blog administrator.

    ReplyDelete
  2. This information is meaningful and magnificent which you have shared here about the Letter of credit. I am impressed by the details that you have shared in this post and It reveals how nicely you understand this subject. I would like to thanks for sharing this article here. tradeimex is one of the trusted global export import data provider that provides the latest information to importers & exporters.

    ReplyDelete
  3. purchased goods Through the Letter of Credit if we paid custom charge, transportation charge and other expenses occurred while purchasing goods from abroad in this case how to prepare journal entry in tally?

    ReplyDelete
  4. These entries are in the books of the buyer, not the seller's as stated

    ReplyDelete
  5. Incredible articles and awesome, Your blog furnished us with important data to work with. Each tip of your post are amazing. we provide Random name generator at affordable prices. for more info visit our website.

    ReplyDelete
  6. Tally training is best job oriented training for commerce as well as non-commerce/arts students, those who are seeking immediate employment can join this course

    Tally Training Institute in Delhi

    ReplyDelete
  7. I love reading to improve my knowledge and this kind of blogs helps me to do so, Thanks.I really appreciate your work.If you require about Company registration in delhi | Company name regstration in delhi please click on it.

    ReplyDelete
  8. Mortgage Intelligence is here to help you get an attractive mortgage rate on a new house. We have the finest mortgage brokers with a lot of expertise and too many lenders who promise the best mortgage rate as well. Please contact one of our agents if you or someone you know wants to purchase a new home in Oshawa. You should check our website for information regarding our agents.Mortgage rate Oshawa

    ReplyDelete
  9. I agree with a lot of the points you made in this article. If you are looking for the The History Of Banking, then visit Open Naukri. I appreciate the work you have put into this and hope you continue writing on this subject.

    ReplyDelete
  10. Great Article. Thank you for providing such a unique and valuable information to your readers. I really appreciate your work. outsourcing tax return preparation to india

    ReplyDelete
  11. what is Exchange Gain and exchange loss.
    how to treat it when costing

    ReplyDelete
  12. You have a genuine capacity to compose a substance that is useful for us. You have shared an amazing post about buy league of legends account Much obliged to you for your endeavors in sharing such information with us.

    ReplyDelete
  13. You have mentioned every aspects of the subject through this article, can you please write about "healthcare accounting services"?

    ReplyDelete
  14. This blog is very knowledgeable .Thankyou for writing this blog .Dreamsoft Consultancy is one of the Leading Company in India who Provide Genuine Experience Certificate in Pune. So Contact here and Get all Details. Contact Us with Get all Details- 9599119376 or check Our Website- https://experiencecertificates.com/experience-certificate-provider-in-mumbai.html

    ReplyDelete
  15. Is there anyone who can recommend the best service among the ones listed here? Bookkeeping Service Toronto

    ReplyDelete
  16. Lol accounts are used by many people as their main account for playing League of Legends. It is important to have one because it is necessary if you want access to ranked games, which can be difficult without a Buy Level 30 League Account. Some players even buy lol accounts just so they don't have to spend time leveling up their current account or start over completely with another name and email address

    ReplyDelete

Post a Comment

Popular posts from this blog

AMALGAMATION :- JOURNAL ENTRIES IN THE BOOKS OF TRANSFEROR AND TRANSFEREE COMPANY

JOURNAL ENTRY FOR FIXED DEPOSIT( INCLUDING INTEREST AND MATURITY)

JOURNAL ENTRY FOR SALARY (including allowance and deductions)