Buyers Credit Accounting Entries

Buyers Credit Essential Accounting Entries, Classification and Disclosures in Books of Accounts:

The following Journal Entries are to be passed in the books of Importer:

1. When raw material is purchased on credit

Purchases A/c Dr xxxxxx

To Party A/c Cr xxxxxx

2. When payment is made on our behalf to party

Party A/c Dr xxxxxx

To Bank A/c Cr xxxxxx

3. When Buyers Credit is availed against LC

Letter of Credit (name of bank) A/c Dr xxxxxx

To Buyers credit (name of bank) A/c Cr xxxxxx

4. When Buyers Credit is availed against Document at sight

Party A/c Dr xxxxxx

To Buyers credit (name of bank) A/c Cr xxxxxx

5. When Buyers Credit rollover

Buyers credit (name of bank) A/c Dr xxxxxx

To Buyers credit (name of bank) A/c Cr xxxxxx

6. When Buyers Credit is paid back

Buyers credit (name of bank) A/c Dr xxxxxx

Bank Interest A/c Dr xxxxxx

To Bank A/c Cr xxxxxx

7. When Withholding Tax is deducted and paid ( in cases where buyers credit is availed from Foreign Banks where WHT is applicable)

         Bank Interest A/c Dr xxxxxx

To TDS Payable A/c Cr xxxxxx

(when withholding tax payment accrues)

TDS Payable A/c Dr xxxxxx

To Bank A/c Cr xxxxxx

(when withholding tax is paid to the department through TDS challan)

8. When due to Foreign Currency Fluctuation income or loss is booked

when gain is booked

Party A/c Dr xxxxxx

To Gain due to Foreign Currency Fluctuation A/c Cr xxxxxx

when loss is booked

Loss due to Foreign Currency Fluctuation A/c Dr xxxxxx

To Party A/c Cr xxxxxx

9. When LC issuance charges taken by bank

LC issuance charges A/c Dr xxxxxx

To Bank account Cr xxxxxx

10. When LoU issuance charges taken by bank

LoU issuance charges A/c Dr xxxxxx

To Bank account Cr xxxxxx

11. When Buyers Credit Commission charges taken by bank

Bank Commission A/c Dr xxxxxx

To Bank account Cr xxxxxx

12. When Term Loan Interest is paid to bank

Bank (Term Loan) Interest A/c Dr xxxxxx

To Bank Account Cr xxxxxx

Disclosure in Balance Sheet as per Pre – revised Schedule VI  (which is applicable till 31st March, 2011)

Buyers Credit, Suppliers Credit and Unpaid LC shall be classified and disclosed  under the sub-head ‘Loans and advances from banks’  under the Head of Secured Loans under Sources of Funds in the balance sheet of the company as per the requirements of Schedule VI to the Companies Act, 1956.

Disclosure in Balance Sheet as per Revised Schedule VI

Buyers Credit, Suppliers Credit and Unpaid LC taken for more than 1 year shall be disclosed under the sub-head Long Term Borrowings under the Head of  Non Current Liabilities under Equity and Liabilities.

Whereas  Buyers Credit Suppliers Credit and Unpaid LC taken for less than 1 year shall be disclosed under the sub-head Short Term Borrowings under the Head of  Current Liabilities under Equity and Liabilities.

Disclosure in Profit and Loss Statement

LC issuance charges, LoU issuance charges, Bank Commission are considered as expenses as Bank Charges and Bank Interest is disclosed under the head of Finance Cost.

Gain due to Currency Fluctuation is considered as income as Exchange Gain and disclosed under the head of Other Income.

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12 thoughts on “Buyers Credit Accounting Entries”

  1. Hello Sir,
    Very useful Information. But i have query that while availing Buyers Credit, at what exchange rate journal entry is to be done, also what would be exchange rate if it is hedged against forward contract.

    1. While availing Buyers Credit the Exchange rate is to be taken of the Date of Transaction of availing Buyers Credit. In cases where the buyers credit is hedged against forward contract, then the exchange rate of the forward contract so booked, is to be taken into consideration.

  2. I want to reinstate buyers credit every month using bank , which rate is considered for reinstate either buying or selling

    1. For reinstatement of Buyers Credit using bank, rate to be considered should be TT selling rate. As a general practice monetary items are reinstated at the end of the year, at the exchange rate prevailing on the Balance Sheet date.

      Why is your requirement to reinstatement of Buyers Credit every month?

  3. What is the accounting treatment of buyers credit –
    1. Rate of exchange to be used for conversion of principal amount at balance sheet date. Recognition of difference between closing principal and initial principal.
    2. Amount of interest accrued but not due to be recognised for Open Buyers Credit at balance sheet date and their rate of exchange (closing or average).
    3. Rollover of buyers credit – recognition of difference between the principal amount of buyers credit which is rolled over.

    1. The accounting treatment of buyers credit ( in case of import of raw materials):

      Revert on Query 1 – Part A – Closing Rate
      Revert on Query 1 – Part B – Difference to be transferred to Foreign Currency Translation Reserve Account.

      Revert on Query 2 – Closing Rate

      Revert on Query 3 – Difference to be transferred to Foreign Currency Translation Reserve Account.

      Kindly note: Accounting treatment for Buyers Credit would differ in case of Import of Capital Assets, as the provisions of AS -16 would also apply.

  4. If Buyers Credit of one year duration is rolled over from year to year how do you treat the variation in foreign exchange. Is it debited to P&L or carried forward to Foreign Currency translation account to be amortised upto 2020. if a Company avails of FCNR loans which again is rolled over from year to year how does a company treat the foreign exchange fluctuations

  5. Please suggest me the accounting treatment of Buyer’s credit is hedged against forward contract. The buyers credit is for purchase of capital goods. The treatment as on the end of the financial year when the liability is outstanding.

  6. What is the accounting treatment of buyers credit – Capital Goods
    1. Rate of exchange to be used for conversion of principal amount at balance sheet date. Recognition of difference between closing principal and initial principal.
    2. Amount of interest accrued but not due to be recognised for Open Buyers Credit at balance sheet date and their rate of exchange (closing or average).
    3. Rollover of buyers credit – recognition of difference between the principal amount of buyers credit which is rolled over.

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