What are the necessary journal entries passed while opening the letter of credit?

Answer 1

The following entries you can pass while opening LC's. You can open a control account to maintain how many LC's are opening and settling

Example ABC company establishing an LC on the Supplier XYZ company for $ 300,000 in SCT Bank

You can open a control account to keep the track of all your LC Transactions is that is opening and closing

First Entry: XYZ Company Dr $ 300,000

to SCT Bank LC Establishing Account $300,000(Control Account)

Being LC establised in the SCT Bank

Second Entry: When you accept the LC ( Liability) that means your goods reached your port and bank send you documents arrival advice

SCT Bank LC Establishing Account $ 300,000 (Control Account)

SCT Bank LC Acceptance Account $ 300,000 (Liability Created)

Third Entry: SCT Bank LC Acceptance Account Dr $ 300,000

To SCT Bank Account (Amount Settled to Party)

Fourth Entry Purchase A/c Dr $ 300,000

XYZ Company $300,000

First entry you debited Xyz Company and Fourh Entry you Credited

First Entry You Credited SCT Bank LC Establishing Account and Second Entry you credited

Second Entry you credited LC acceptance account and Third entry you debited

Fourth Entry you Debited purchases and Credited Bank that means your total LC recorded from the opening to settling.