Please explain Letter of credit and letter of credit margin.
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Letter of Credit
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L/C. A binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be tranferred to the seller. Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods. In order for the payment to occur, the seller has to present the bank with the necessaryshipping documentsconfirming the shipment of goods within a given time frame. It is often used in international trade to eliminate risks such as unfamiliarity with the foreign country, customs, or political instability.
L/C Margin indicate that the buyer will keep with the bank prescribed percentage of LC amount in the form of Fixed deposit.
Example. LC amount 2.00 crore Margin 25%
This means 25% of 2.00 Crore i.e 50.00 lacs will be kept with bank in the form of FD.
Hi , see the attached file for lc
In that case how would you pass Journal entries?
While opening a Letter of credit (LC) only following entries are passed -
1. For margin, if any -
Deposit with bank (Margin deposit) Dr.
Bank Cr.
2. Bank Charges
Bank charges Dr.
Bank Cr.
For LC, no entry is passed in books. However, in notes we need to give the disclosures.
your file and message is not opening.
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