Accounting of Letter of Credit opened

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Madhukar (Querist)
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14 November 2010 Dear All

Request you to kindly tell me how to account / the entry to be passed (accounting software used - Tally)while establishing Letter of Credit (LC) in favour of the supplier for procurement of Raw materials / spares. On an average the usance period of LC is between 60-120 days.

Currently the client is not recording the transaction in tally and the same is kept outside the books. As and when the LC is liquidated the same is recorded in the books.

The books doesnt reflect at any point of time the total of LC outstanding.

I am of the opinion that - for the client it is not a contigent liability.

Kindly advise

S.Siju Gemin

S.Siju Gemin (Expert)
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15 November 2010 Dear Mr.Madhukar,
Kindly note that the usance LC due date is usually from the date of airway bill of the supplier.

Hence when the shipment reaches the Buyer, the Buyer records the purchase of the consignment.

This itself is the indicator of the LC opened and payment due at any time

Moreover you can always pass an post dated entry for the payment due.

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