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Accounting entries for letter of credit transactions

Amit (Article) (24 Points)

12 August 2009

Please provide me the accounting entries for LC and steps involved in auditing for the same.

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6 Replies

Narayanan Balakrishnan (Chartered Accountant) (98 Points)
Replied 14 August 2009

I guess you are asking from the issuing bank's perspective. The issuing bank will not account for LCs in its books. It is required to be disclosed in the balance sheet as contingent liability.

CA munjal (articled clerk) (100 Points)
Replied 14 August 2009

friend please do provide from whose perspective you want to have accounting entries.

MAHESH (ACCOUNTANT) (823 Points)
Replied 17 August 2009

I m not understand pease mentioned clearly

(Guest)

Yes there are no entry made on receipt of any Letter of Credit.

But if you are a buyer, using LC to purchase any material from outside country then you can make entry in your books. These entries does not effect to the books of account. That is for controlling the limit of bank. You can maintain two ledger account where you debit and credit6 both the account as and when the transaction happen. It may helpful for you to control the LC limit with your bank. Otherwise there are no other entries for LC.

>> Rajesh

1 Like

Khurram (qweq) (22 Points)
Replied 09 December 2009

Originally posted by :Rajesh
"	Yes there are no entry made on receipt of any Letter of Credit. But if you are a buyer, using LC to purchase any material from outside country then you can make entry in your books. These entries does not effect to the books of account. That is for controlling the limit of bank. You can maintain two ledger account where you debit and credit6 both the account as and when the transaction happen. It may helpful for you to control the LC limit with your bank. Otherwise there are no other entries for LC. >> Rajesh	"

so as a buyer, we do not need to do any entries? DR Vendor CR Bank will suffice?