Check sibling questions

What is LC

Suppose Company wants to purchase goods on credit from a Foreign Party Alex Ltd,USA

Alex Ltd may not trust the company and refuse to give goods on credit.

In this case,Company can take LC (letter of Credit) from his Bank against some security like property

Thus Alex become secure that in case company does not pay,he will get money from Company''s Bank


Entry for LC (Letter of Credit)

Company imported goods worth $100000 from Al Qatar,UAE (Exchange Rate Rs 60/$)

Payment was secured against LC taken from ICICI Bank for 3 months

Bank took 2% Commission to secure the LC

As a security, Bank took Margin in form of FD at 10%

After 3 months, LC was revoked and payment made to party

Pass Entries




LC can be for both Imported and Domestic purchases

For Imported purchases,it is called FLC

For local purchases,it is called ILC

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CA Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 13 years. He also provides Accounts Tax GST Training in Delhi, Kerala and online.