Letter of credit

Issuing Bank (Opening Bank) : The issuing bank is the one which create a letter of credit and takes the responsibility to make the payments on receipt of the documents from the beneficiary or through their banker.

Dear M.Reddy,

LC is not a direct liability of the company, however it is a contingent liability and  hence it should be disclosed as contingent liability.

Since its a non-fund credit facility , there is in reality , no effect in the books of the company as it would record its real creditors as a liability and not the issuing bank.

Note: Its important to understand, that LC is nothing but a simple agreement between banks of buyer and seller.

Hope you have understood..

rakesh