However, LC transaction is a contingent liability until documents under LC not accepted but as there may be businesses having more than one banker and therefore non fund based limits need to be governed continuously at any point of time.
Therefore, could you please suggest accounting entries for the benefit of Forum Members.
-Dashrath
Hi,
LC may be of three types" Confirmed", "Not confirmed" "May Be".
These status are given by the Negotiating Bank.
Once you submit proper documents to the negotiating bank .
They would have to give you payment against the LC.
further can you just throw some more light on your query.
Answer to your specific questions are:
1.Opening charges of L/C are to be debited to LC Charges and credit to bank for payment while opening LC.
2.Normally we are required to keep 5%,10% etc as margin money for security of due discarge of LC terms and so Debit Margin money a/c in Cash and bank balances and credit to bank a/c on payment.
3.On receipt of material under LC entries for normal receipt and accounting of the same are to be made.
4.On discharge of LC the Magin money a/c to be reversed and interest on that to be accounted.
LC charges have to be transferred to material a/c depending on the policy of the company.
kkm
Karia Overseas
Ahmedabad
CA
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Rahul Dang & Associates-Chartered Accountants
Pune
CA Inter
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