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Accounting for guarantees and LCs - Printable Version

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Accounting for guarantees and LCs - Shafi - 08-17-2009

Dear Members,

Can any one help me to indicate double entries needed to record guarantees and LCs in the books of a bank during recognition, maintanace and cessation of such transactions?
Your help will be highly appreciated.
Kind regards

- nabeelanwer - 08-21-2009


Let me elaborate LC and LG further as

<u>Transaction-related Contingent Liabilities</u>
These normaly include performance bonds, bid bonds, warranties, advance payment guarantees, shipping guarantees and standby letters of credit related to particular transactions issued in favour of Government, banks etc.

<u>Trade-related Contingent Liabilities</u>
This ususally include LCs (Both sight and usance) and accepatances.

LCs and LGs are off balance sheet items and disclosed in contingences and commitments portion of balance sheet and hence no double entry required. However you will record LC margin and Guarantee margin as liability in books of bank.

Nabeel Anwer

- muhammad_apa - 08-27-2009

my dear any contigencies( Like Gurantee and any other events whose outcome depend in future events) shall be shown in notes to the accounts in Balance Shaat under the heading of Contigencies but read IAS 37 for this.
and LC other than capital expenditure shall be shown under the heading of commitment in notes to the accounts in Balance Sheet and LC related to Capital expanditure shall be add in related capital expenditure in Fixed assets.ok

Muhammad Atif