36712314 Letter of Credit in SAP

Letter of Credit is basically a document that yo u would obtain from your banker bank er and deliver it to your supplier for the purchasse of goods as a security for the payment on due date. It can also be a document d ocument 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 g uaranteed 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. In SAP 1.At the time of Exports

Dr Customer  Cr Sales 2.Receipt of LC T Code F-49 Enter the LC as Noted Item as it no financial implication. 3. Receipt of Money from Customer T Code F-28 Enter Spl Gl Indicator L in the Open Itme Selection segment , this will clear the Open item in the LOC GL account. Same is the process for Bank Gaurantee also .