Accounting Entries for Letter of Credit (LC)
Journal Entries For Letter of Credit
Commonly Known As : L C
Letter of Credit:
Letter of Credit is a credit letter from bank assuring/guaranteeing of a buyer payment to a seller (Business Transaction). Buyer payment to a seller will be clear on time in specified currency with specified amount subject to fulfill defined conditions of letter of credit.
Journal Entries:-
(1) Entry for opening of LC
L.C. Margin A/c Dr.
To Bank A/c
(Being ..% margin part to bank against LC of Rs. …………)
(2) Payment of Commission/LC Charges
L.C. Charges /Commission A/c Dr.
To Bank A/c
(Being LC Commission and Charges Paid against LC No. ….of Rs. .)
(3) Purchase of Goods
Purchase A/c Dr.
To Party (Creditor) A/c
(Being goods purchased against letter of LC No. ….)
(4) Entry for realization of LC
Party (Creditor) A/c Dr.
To Letter of credit A/c
(Being LC forwarded to buyer’s LC No. …..)
(5) Payment of LC
Letter of Credit Dr
To LC Margin A/c
To Bank A/c
(6) In Case of devolvement of LC
Letter of Credit Devolved A/c
To Letter of Credit
To L C Margin A/c
(Being LC no .. of Rs. devolved and margin adjusted by bank)
