Subsidiary Ledgers

A subsidiary ledger is a group of similar accounts whose combined balances equal the
balance in a specific general ledger account. The general ledger account that
summarizes a subsidiary ledger's account balances is called a control
account or master account. For example, an accounts receivable subsidiary ledger
(customers' subsidiary ledger) includes a separate account for each customer who
makes credit purchases. The combined balance of every account in this subsidiary
ledger

Types of Computer Processing Files

 Jaa

 There are numerous types of files used for storing data needed for processing, reference
or back up. The main common types of processing files include

 Master files,
 Transaction,
 Reference,
 Backup, report and
 Sort file.

1. Master file

 A master file is the main that contains relatively permanent records about particular
items or entries. For example a customer file will contain details of a customer such as
customer ID, name and contact address.

1. Transaction (movement) file

A transaction file is used to hold data during transaction processing. The file is later
used to update the master file and audit daily, weekly or monthly transactions. For
example in a busy supermarket, daily sales are recorded on a transaction file and later
used to update the stock file. The file is also used by the management to check on the
daily or periodic transactions.

Reference file

A reference file is mainly used for reference or look-up purposes. Look-up information is
that information that is stored in a separate file but is required during processing. For
example, in a point of sale terminal, the item code entered either manually or using a
barcode reader looks up the item description and price from a reference file stored on a
storage device.
Backup file

A backup files is used to hold copies (backups) of data or information from the
computers fixed storage (hard disk). Since a file held on the hard disk may be corrupted,
lost or changed accidentally, it is necessary to keep copies of the recently updated files.
Incase of the hard disk failure, a backup file can be used to reconstruct the original file.

Report file

Used to store relatively permanent records extracted from the master file or generated
after processing. For example you may obtain a stock levels report generated from an
inventory system while a copy of the report will be stored in the report file.
Sort file
It stores data which is arranged in a particular order.

 Used mainly where data is to be processed sequentially. In sequential processing, data or

records are first sorted and held on a magnetic tape before updating the master file.

Archieve file:-

An archive file is a file that is composed of one or more computer files along with
metadata. Archive files are used to collect multiple data files together into a single file for
easier portability and storage, or simply to compress files to use less storage space.For
example Journal is an archieve file.

Deferred Taxation
Deferred taxation is an accounting technique used to reconcile the difference between accounting tax (tax liability calculated as per
financial accounting principles of entity) and regulatory tax (tax liability calculated as per regulations of tax authority) where
difference is of temporary nature and will ultimately reverse over a period of time.

To differentiate the carrying amounts calculated under two situations we use the terms:

1. accounting base is the value of asset or liability calculated as per entity’s accounting principles
2. tax base is the value of asset or liability calculated as per tax rules

1 Understanding the differences – Permanent Vs Temporary

These differences may be permanent in nature or temporary

Permanent differences are such differences between accounting base and tax base that will NOT reverse over
the period of time. For example a permanent difference will arise if an expense is deducted in financial statements
but not allowed for deduction under tax rules. There is no accounting solutions for such differences and entity has
to accept the tax rules which usually result in higher tax charge.
Temporary differences on the other hand are such differences between accounting base and tax base that will
reverse or auto-adjust over a period of time. For example difference in depreciation rate or useful life of asset.
Although on year-to-year basis the difference will be there, but its just a matter of time when asset reach the same
carrying amount under both accounting and tax rules. For such differences we can apply deferred taxation
concept.

2 Deferred tax liability and deferred tax asset

Put it in simple words:

1. Deferred tax liability arises if accounting base is greater than tax base i.e. accounting base > tax base
2. Deferred tax asset arises if tax base is greater than accounting base i.e. tax base > accounting base

2.1 Deferred tax liability – Concept, Calculation and Accounting

Remember deferred tax liability arises when accounting base > tax base. This must have happened if entity has
charged lesser expense to profits under its accounting than what should have been as per tax authorities.

For example entity bought an asset for $5,000. Asset has 5 years life and entity is charging depreciation on
straight line basis. This gives first year’s depreciation $1,000 (5,000 / 5) and carrying amount to be $4,000 (5,000
– 1,000)

Tax authorities however, require first year’s depreciation to be 1,500. This will give the carrying amount to be
3,500 (5,000 – 1,500)

Now two things to pay attention to:

1. accounting base (4,000) is greater than tax base (3,500). Mentioned it to for a reminder.
2. charging lesser depreciation in accounting (1,000) causing profits to increase and charging higher
depreciation as per tax rules (1,500) causing profits to decrease.

Now that entity has higher profits under its accounting which translates to higher tax liability, its just that profit
calculated as per tax rules is lesser and thus actual tax paid will be lesser than liability calculated as per entity’s
accounting. In short, entity’s books calculated higher tax liability but as actual payment is lesser, the remainder of
the tax liability is deferred thus creating deferred tax liability.

2.2 Deferred tax asset – Concept, Calculation and Accounting

Again, deferred tax asset arises when tax base > accounting base. This will happen if expense charged as per
entity’s accounting is higher than what should have been as per tax regulations.

Suppose entity bought an asset for $5,000 that has five years life and depreciates on straight line basis.
Depreciation for the first year will be $1,000. (5,000 /5). This renders asset’s carrying amount to be $4,000.
If tax rules require first year’s depreciation to be $800. This means asset’s carrying amount should be 4,200 (5,000
– 800).

Again, two things to pay attention to:

1. Tax base (4,200) > accounting base (4,000)

2. Depreciation expense charged as per entity’s accounting is more than tax depreciation charge. This will
result in lower profits under accounting and higher profits under tax rules.

Now that entity’s accounting has rendered lower profits, entity is supposed to recognize lower tax liability.
However, tax profits are greater and will result in higher tax amount and thus actual tax payment will be higher
than the liability calculated as per entity’s accounting. In short, entity has paid higher tax than the amount
calculated as per entity’s books and the amount paid above is just like prepaid expense thus creating deferred tax
asset.

What is Off-Balance Sheet Financing (OBSF)?

Off-balance sheet (OBSF) financing is an accounting practice whereby
companies record certain assets or liabilities in a way that prevents them from
appearing on the balance sheet. It is used to keep debt-to-equity (D/E)
and leverage ratios low, especially if the inclusion of a large expenditure would
break negative debt covenants.

Examples of off-balance-sheet financing (OBSF) include joint

ventures (JV), research and development (R&D) partnerships, and operating
leases.