Letter of Credit

Letter of Credit is basically a document that you would obtain from your banker and deliver it to your supplier for the purchase of goods as a security for the payment on due date. It can also be a document that you would receive from your customers for supply of goods. It is primarily a document issued by a banker so that the supplier of Goods is guaranteed about the payment for the goods he has supplied. So when you receive the Letter of Credit from your banker and there would be no Accounting Entries except for the charges that your banker would charge you for the issue of the Letter. Then when you issue the Letter of Credit to your Supplier for Import of Goods, the following entries would be passed i.e. Inventory Dr Vendor Cr In this situation also no accounting entries would be passed specific to Letter of Credit. At the time of Payment your vendor's banker would approach your banker for payment and not you for the Goods delivered. Hence your banker would pay the amount on behalf of you to your supplier and then intimate you. The amount so paid has to be entered in your books in the following way Vendor Dr Bank Cr for clearing the open item in the Vendor account. If you observe in the whole Business Process relating to Letter of Credit the monetary movement is only at the time when the invoice is due for payment. Hence we treat this as a Noted item i.e. only for Information, in SAP. Letter of Credit for Exports is nothing but the reversal for Purchases. In this case we receive a Letter of Credit from our Customer. Once we receive the Letter of Credit from Our Customer, we deliver the Goods to him. In that event the following accounting entries are passed:Customer Dr Sales Cr On the due date our banker would forward the Letter of Credit to our customer banker and collect the amount on our behalf and credit the amount in our account. In that situation the following entries are passed Bank Dr Customer Cr (clearing the open items) The entries stated above are similar to those passed in SAP also.

Similar is the case for Bank Guarantee also. Special GL Indicator. When the payment is made to the seller the bank guarantee is received back from the seller and the open item in the particular GL account would be cleared. So the next step is F-19. Actually. Bank Guarantee Bank Guarantee is a Non Fund based transaction. Hence there is no effect in books which is right. So its better to use statistical posting through F-38. BG given are required to be shown as notes to accounts.Receipt of LC T Code F-49 Enter the LC as Noted Item as it no financial implication. In noted items no entry is passed. this will clear the Open item in the LOC GL account. This will reverse statistical entry.e. It has no impact on the books of Accounts. for the purchase of Goods. It is a sort of Guarantee that a Purchaser gives to a Seller.In SAP 1. It is a Letter issued by the Banker of the Purchaser to the Seller.At the time of Exports Dr Customer Cr Sales 2. As it has to impact on the financial transactions we need to treat it is SAP as Noted Item. 3. you have to expire the BG. The configuration required is to be done using T code FBKP i. Once the BG is over. SAP records BG through statistical posting or through noted items. By using clearing account. we nullify the entry. There should not be any accounting entry in books. But this may create some problem while clearing.Receipt of Money from Customer T Code F-28 Enter Spl GL Indicator L in the Open Item Selection segment . Steps in BG: Create special GL indicator for BG: FBKP create reconciliation GL account for BG (FS00) and assign the same in T code FBKP Create BG: F-38 Customer A/c-Dr BG Clearing A/c-Cr .

it is possible that the customer may want to extend the expiry date of bank guarantee. if any: FB02 As regards extension. When changing line items however.Enter BG Charges : F-02 When you will give bank guarantee. You can change a guarantee by changing the document or the line items in the customer account. . Extension of BG (Document Change). So you may have to change the due date. Viewing open BG: FBL5N Expiring BG: F-19 BG will get expired once the contract is performed. So you will have to bear it and you will have to pass entries. bank will charge some charges. the vendor account. or the reconciliation account. So BG needs to be expired. So it needs to be closed. you must select With special G/L transactions on the Change Vendor Line Items: Initial Screen otherwise the guarantees you wish to change will not be selected.

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