Buyers Credit Essential Accounting Entries, Classification and Disclosures in Books of Accounts:
Journal Entries 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.
Related Article: Applicability of AS 11 in Buyers Credit on Capital Goods
Buyer's Credit & Supplier's Credit 
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.
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.
I want to reinstate buyers credit every month using bank , which rate is considered for reinstate either buying or selling
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?
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.
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.
i have purchase imported machinery against LC june 2017 and LC payment made by Buyers credit as feb’2018 and buyers credit payment made by term loan sep’2018, now in current year buyers credit payment made and create gain/loss should be transfer to fixed assets or P & L ?
When the buyers credit payment is made in the current year the forex gain/loss should be transferred to capital good / fixed asset.
If the Capital goods is procured as non integral foreign operation, the unrealised foreign exchange gain / loss should be transferred to Foreign Currency Translation Reserve a/c. No effect will come in Profit and Loss A/c.
What is the different between Buyers credit/Roll over? What are the type of charges bank will claim for?
Refer article: Buyer’s Credit Rollover
Is it necessary to Book exchange Loss / Gain on Rollover of Buyers credit and at which exchange rate?
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
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.
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.