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LETTER OF ACCOUNTING DEPARTMENT OF NATIONAL BANK OF THE REPUBLIC OF KAZAKHSTAN

of May 3, 2005 No. 24130/711

Present the Accounting department of National Bank of the Republic of Kazakhstan submits you for use in work recommendations about accounting of transactions with documentary credits.

RECOMMENDATIONS ABOUT ACCOUNTING OF TRANSACTIONS WITH DOCUMENTARY CREDITS

The procedure for carrying out transactions with letters of credit is regulated by Rules of carrying out transactions with documentary credits by the banks of the Republic of Kazakhstan approved by the resolution of Board of National Bank of the Republic of Kazakhstan of 25.04.00 No. 178. Account of transactions with letters of credit is kept depending on what role is played by bank in transaction with documentary credits and what are determined conditions of the letter of credit.

In these recommendations the following concepts are used:

The advising bank - the bank authorized by emitting bank on transfer to the beneficiary of the letter of credit and/or changes to it without obligations from its party.

The beneficiary according to the documentary credit - person in whose advantage the emitting bank opens the letter of credit. Usually beneficiary is the export seller of goods or services which are subject of the international treaty of purchase and sale.

The performing bank - the bank authorized by emitting bank to accept, to check documents and to perform the letter of credit subject to its terms and conditions.

The import letter of credit - the obligation issued by emitting bank on behalf of the importer (buyer) or from own name to pay to the seller (beneficiary) the cost of acquired goods and services if conditions of the documentary credit are complied.

The paid letter of credit - the letter of credit when which opening the prikazodatel of the letter of credit (client) makes available to emitting bank the amount of money (covering) equal to the amount of the letter of credit, for the term of its action with condition of possible use of this money for payment for the letter of credit.

Prikazodatel of the letter of credit (client) - person representing to the bank serving it (bankemitent) the statement on opening of the letter of credit.

The confirmed letter of credit - the letter of credit including mark about additional guarantee of its execution from other bank which is not emitting bank.

Confirmatory bank - the bank assuming liability in addition to the obligation of emitting bank, on execution of the letter of credit subject to its terms and conditions.

The unconfirmed letter of credit - the letter of credit in case of which there is no confirmation of execution of payment from bank through which payment is made.

The Transferabelny (translated) letter of credit - the letter of credit providing possibility of its use fully or partially by one or several persons in addition to the beneficiary (the second beneficiaries).

The export letter of credit - the obligation of bank to pay (beneficiary) to the seller of goods or services certain amount of money in case of timely submission of the relevant documents confirming sending goods or accomplishment of contractual services.

Section I. Import letter of credit

§ 1. The covered unconfirmed letters of credit

1.1 When opening by emitting bank of the covered unconfirmed letter of credit based on the statement of prikazodatel of the letter of credit - the import client about opening of the letter of credit by emitting bank money from the current account of the client is transferred and deposited on the account - coverings for implementation of payment under the letter of credit. At the same time the following accounting entries are carried out:

a) on the cover amount of the letter of credit:

Dt 2203 Current accounts of clients

Kt 2855 Creditors by documentary calculations

and at the same time, on the amount of the letter of credit:

Dt 6020 Possible requirements for the issued paid letters of credit

Kt 6520 Possible obligations according to the issued paid letters of credit

1.2 When implementing of payment by emitting bank according to the import paid letter of credit in case of accomplishment of conditions of the letter of credit and in the presence of covering in bank on the amount of execution of the letter of credit the following accounting entry is carried out:

Dt 2855 Creditors by documentary calculations

Kt 1051 Correspondent account in National Bank of the Republic of Kazakhstan

1052 Correspondent accounts in other banks

2010 Correspondent account

1.3 After execution of payment by emitting bank according to the import letter of credit the bank makes closing of the letter of credit, in case of partial execution - on the execution amount:

Dt 6520 Possible obligations according to the issued paid letters of credit

Kt 6020 Possible requirements for the issued paid letters of credit

1.4 In case of cancellation of the import paid letter of credit the following accounting entries are carried out:

on the amount of return of covering according to the letter of credit to the client:

Dt 2855 Creditors by documentary calculations

Kt 2203 Current accounts of clients

and at the same time,

Dt 6520 Possible obligations according to the issued paid letters of credit

Kt 6020 Possible requirements for the issued paid letters of credit

1.5 In case of execution of payment according to the import paid letter of credit through the performing bank, after receipt of confirmation from the performing bank about verification of tovarootgruzochny documents by it and compliance to their conditions of the letter of credit on transfer amount carries out the following accounting entries:

Dt 1855 Debtors by documentary calculations

Kt 1051 Correspondent account in National Bank of the Republic of Kazakhstan

1052 Correspondent accounts in other banks

1.6 After receipt of confirmation from the performing bank about receipt of the relevant documents and transfer of the amount of the letter of credit for benefit of the beneficiary, the bank by the issuer makes closing of the letter of credit:

Dt 2855 Creditors by documentary calculations

Kt 1855 Debtors by documentary calculations

and at the same time,

Dt 6520 Possible obligations according to the issued paid letters of credit

Kt 6020 Possible requirements for the issued paid letters of credit

1.7 Cancellation of the import paid letter of credit when implementing payment according to the letter of credit:

a) on receipt amount of the transferred cover amount according to the import letter of credit from the performing bank:

Dt 1051 Correspondent account in National Bank of the Republic of Kazakhstan

1052 Correspondent accounts in other banks

Kt 1855 Debtors by documentary calculations

and at the same time,

Dt 6520 Possible obligations according to the issued paid letters of credit

Kt 6020 Possible requirements for the issued paid letters of credit

b) in case of return of cover amount according to the letter of credit to the client:

Dt 2855 Creditors by documentary calculations

Kt 2203 Current accounts of clients

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