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Entry in Buyer's Books (Importer):📌 To recognize liability upon acceptance of documents:plaintextDr. Purchases / Inventory / Fixed Asset (Amount of LC) Cr. LC Payable / Accounts Payable (Amount of LC)
If the bank directly debits the buyer’s account:
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- Dr. Inventory/Purchases AED 10,000
- Cr Creditors AED10,000Dr. Goods AED 2,500
- Cr. Current Trade Payables AED 2,500
Step 2: Record Payment Using the LC Bank Account
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- Debit: Creditors → This reduces the liability, as the payment is initiated.
- Credit: LC Bank Account → This represents the LC obligation in the books.
Example:
- Dr Creditors AED10 AED 2,000500
- Cr Bank LC Account AED10,000 AED 2,500
Note: Since this is an import, the customs declaration and other import-related entries will remain unchanged. The only difference lies in the payment perspective.
Users can create a new GL account to separately track this balance and use the same GL for the dummy bank, renaming it as needed.
Step 3:
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Settling the LC Payment from the Actual Bank
Once the LC payment is due, the company transfers funds from its actual bank account to settle the LC Bank obligation.
Entry:
- Debit: Creditors LC Bank Account → This reduces removes the liability , as the payment is initiatedfrom the dummy LC Bank account.
- Credit: LC Actual Bank Account → This represents reflects the payment made to the LC obligation in the booksissuing bank.
Example:
Dr
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LC Bank Account AED
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2,
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500
Cr Actual Bank
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AED 2,500
Create a Money transfer document, to transfer the balance between banks
This ensures that the LC process is properly recorded, from goods received to payment settlement.
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