What is a letter of credit?
A letter of credit is a letter or document issued by a bank for use by one of its customers. The letter of credit states that the bank will guarantee payment up to the stated amount for transactions of its customer (named in the letter of credit).
The letter of credit is helpful if the bank’s customer is traveling in countries where the customer is not known. The letter of credit will allow the customer to purchase goods on credit because the seller is assured of payment. In other words, the credit risk to the seller is greatly reduced because the seller can rely on the credit of the bank instead of the credit of the customer.
A letter of credit should not be confused with a line of credit.
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How do I get a Letter of Credit?
Is the Letter of Credit explained above and the LC (in international trade) are different ones?
Could you please explain?
How do you post a Letter of Credit to the Balance Sheet? It is definately a liability, but what is the offsetting entry?
A Letter of Credit is a contingent liability. It only becomes a liability when the beneficiary has performed (presented documents) that comply to the terms and conditions of the Letter of Credit.
Do you have samples on how to treat the transaction with letter of credit? I want to know where the FX loss comes in and how do we treat it in the books and recognize in BS?.. what should be debited and credited to which account. thanks so much!
is there any journal entry to made for letter of credit on the part of supplier?