is letter of credit a liability
Issuer of Letter of Credit. The issuer of the letter of credit is the financial institution that issues the letter of credit. Said financial institution records the letter of credit as being a contingent liability, meaning that it makes no entry for the document until it has been exercised. Instead, the financial institution must disclose in a footnote that it has such documents outstanding. Once exercised, the entry for them is an increase to expenses and either a decrease to the issuer's cash account or the occurrence of a payable on its part depending on its payment method.
Repaying the letter of credit amount is treated like an accrued liability. For example, you might have a $50,000 letter of credit balance. The bank fees are $250 and the advisory fees are $2,000. Debit the letter of credit-payable account for $50,000 and credit cash for $50,000.