Letter Of Credit Work Around

[shrinu42]

Hi Gurus,
Is there any workarounds met LC Payments in Oracle Apps R12.Wt are the steps to impliment For LC Payments
Thanks in Advance
Regards
Shrinu

[Anjireddy.r12]

Hi,

Please verify the following workaround for LC payment to your requirement,

L/C Process in Payables:

1. Raise a Purchase Order

Raise a Purchase Order in Oracle Purchasing stating the description of goods, quantity, unit price, and terms of delivery. Purchase order would be issued after beneficiary examined that all the terms and conditions of letter of credit are/can be complied with.
Letter of Credit number and/or other details can be tracked on Purchase Order with the help of DFF.

No Accounting Entries.

2. Record a Prepayment Invoice against Vendor

In case of confirmed sight letter of credit the confirming bank is obliged to honor the drawing without recourse to the beneficiary. Beneficiary (Supplier) should present the documents to Advising / Confirming Bank.
Prepayment Account Dr
Supplier Liability Account Cr

3. For Payment of the above Prepayment Invoice

Record a dummy payment against the above Prepayment Invoice. For making this dummy payment, a Dummy LC Bank or Dummy LC Bank Account (under a Bank through which Letter of Credit has been processed) can be created.
Supplier Liability Account Dr
LC Payment Clearing Account Cr
4. Simultaneously, raise an Invoice against Bank to record the liability towards payment made by Bank to Vendor.

LC Payment Clearing Account Dr
Bank Liability Account Cr
5. Payment to Bank

Bank Liability Account Dr
Bank / Bank Clearing Account Cr
6. Receipt of Goods
Receiving Material Account Dr
AP Accrual Account Cr

7. On receipt of Invoice from Vendor
Enter an Invoice in Payables and match it with Purchase order:
AP Accrual Account Dr
Supplier Liability Account Cr

8. Apply the prepayment against above Invoice

Supplier Liability Account Dr
Prepayment Account Cr


Thanks& Regards,
Anjireddy.

[shrinu42]

Hi Anji Reddy,
Thanks for Immidiate replay
I have done same process earlier but in that situation,Purchase Order is in Forging Currency,In 5th step we are making Invoice and Payment is Functional Currency.In this scenario i have to enter Bank Commisions Also.if we do above all steps is there any problem we can face Reconcilation.
Regards
Shrinu

[Anjireddy.r12]

No problem, we can do. because here supplier payment and bank payments done separately.

<b>Supplier,</b>

po- 100usd
prepayment - 100 usd in dummy l/c account and apply the invoice after receiving the goods...supplier balance is over.

<b>Bank</b>

Create invoice in INR
LINE1 :Item 100*45 = 4500 rs
Line2: Commission: 500rs

Make payment to bank in Inr.

No problem in reconciliation too.

Thanks & Regards,
Anjireddy

[shrinu42]

Hi Anjireddy,
Appriciate your immidiate responce...
I have done one Test Case,In this i have clearly mentioned amounts and account Codes...In this 2nd 3rd step we can see the relation,(LCPayment Clearing)..is there any thing i hv done wrong let me know and how do we can see the linkup bettwen LCPayment & Dummy Bank.

<font color="red"><u>1) Actual Prepayment</u></font id="red">

Advance to Supplier A/C Dr (2000USD) <font color="yellow">A/c2000</font id="yellow">
Liability A/C Cr (2000USD) <font color="blue">A/C4000</font id="blue">

<font color="red"><u>2) Dummy Payment </u></font id="red">

Liability A/C Dr (2000USD) <font color="blue">A/C 4000</font id="blue">
LC payment Clearing A/C Cr (2000USD) <font color="purple">A/C 9000</font id="purple">

<font color="red"><u>3) Invoice to Dummy Bank</u></font id="red">
LC Payment Clearing A/C Dr(10000INR) <font color="purple"> A/C 9000</font id="purple">
Bank Liability A/C Cr (10000INR) <font color="blue">A/C 4000</font id="blue">

<font color="red"><u>4) Actual Payment to Bank</u></font id="red">

Bank Liability A/C Dr (10000INR) <font color="blue">A/C 4000</font id="blue">
Bank Clearing A/C Cr (10000INR) A/C 6000

<font color="red"><u><div align="left">5) Receipt of Goods</div id="left"></u></font id="red">

Material Account A/C Dr (2000USD)
AP Accrual A/C Cr (2000USD) A/C 3000

<font color="red"><u>6) Invoice in Oracle Payables & match it with Purchase order</u></font id="red">

AP Accrual A/C Dr (2000USD) A/C 3000
Liability A/C Cr (2000USD) <font color="blue">A/C 4000 </font id="blue">

<font color="red"><u>7) Prepayment against above Invoice</u></font id="red">

Liability A/C Dr (2000USD) <font color="blue">A/C 4000</font id="blue">
Cr Advance to Supplier A/C Cr (2000USD) <font color="yellow">A/C 2000 </font id="yellow">
Regards
Shrinu