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Top 100 Accounting Interview Questions & Answers

1) Why did you select accounting as your profession?

Well, I was quite good in accounting throughout but in my masters, when I got distinction I decided to
adopt this field as a profession.

2) Do you have any professional experience of this field?

Yes, I have worked as an accountant at two different places.

3) Did you use accounting applications at your previous companies or prefer working manually??

Yes, I have used Advanced Business Solutions and AME Accounting Software in my previous jobs.

4) Can you name any other accounting application?

Yes, I am familiar with CGram Software, Financial Force, Microsoft Accounting Professional, Microsoft
Dynamics AX and Microsoft Small Business Financials.

5) Which accounting application you prefer most and why?

I think all are good though but Microsoft Accounting Professional is best because it offers reliable and
fast processing of accounting transactions that saves time and increases proficiency.

6) What is the abbreviation for the accounting terms debit and credit?

Debit abbreviation is dr and credit abbreviation is cr.

7) How many types of business transactions are there in accounting?

There are two types of transactions in accounting i.e. revenue and capital.

8) What is balance sheet?

It is a statement that states all the liabilities and assets of the company at certain point.

9) Have you ever heard about TDS, what it is?

Yes, TDS abbreviates Tax Deduction at Source.

10) In balance sheet, where do you show TDS?

It is shown on the assets section, right after the head current asset.

11) Do you have any idea about Service Tax or Excise?

It is a kind of hidden tax that is included in the service provided by the service provider and paid by the
service receiver.

12) Do you think there is any difference between inactive and dormant accounts?

Yes, both are different terms in accounting. Inactive accounts means that accounts have been closed and
will not be used in future as well. While, dormant accounts are those that are not functional today but
may be used in future.
13) What is tally accounting?

It is the software used for accounting in small business and shops for managing routine accounting
transactions.

14) How can you define departmental accounting?

It is a type of accounting in which separate account is created for departments. It is managed separately
as well as shown independently in the balance sheet.

15) Define fictitious assets?

These are the assets that cannot be shown or touch. Fictitious assets can only be felt such as good will,
rights etc.

16) By saying, perpetual or periodic inventory system; what do we mean?

In the first one i.e. the perpetual inventory system, the accounts are adjusted on continual basis. In the
periodic inventory system, the accounts are adjusted periodically.

17) In accounting, how do you define premises?

Premises refer to fixed assets that are shown in the balance sheet.

18) In accounting, VAT abbreviates what?

VAT means Value Added Tax.

19) Do you possess any knowledge about accounting standards?

Yes, as per my knowledge there are total 33 accounting standards published so far by ICAI. The purpose
of these standards is to implement same policies and practices in any country.

20) What is ICAI?

It is the abbreviation of Institute of Chartered Accountants in India.

21) How can you explain the basic accounting equation?

We know that accounting is all about assets, liabilities and capital. Therefore, the accounting equation is:

Assets = Liabilities + Owners Equity.

22) Define Executive accounting?

It is a type of accounting that is specifically designed for the business that offers services to users.

23) Define Public accounting?

Public accounting offers audits and CPAs to review company financial records to ensure accountability. It
is for general public.

24) What is a CPA?


CPA stands for Certified Public Accountant. To become a CPA, one should have to do many other
qualifications as well. It is a qualification with 150 hour requirement; it means that one should complete
150 credit hours at any accredited university.

25) What do you think is bank reconciliation statement?

A reconciliation statement is prepared when the passbook balance differs from the cashbook balance.

26) Differentiate Public and Private Accounting?

Public accounting is a type of accounting that is done by one company for another company. Private
accounting is done for your own company.

27) What is project implementation?

Project implementation involves six steps in total such as:

Identify Need

Generate and Screen Ideas

Conduct Feasible Study

Develop the Project

Implement the Project

Control the Project

28) Do you think Accounting Standards are mandatory and why?

Yes, I do believe that accounting standards play a very important role to prepare good quality and
accurate financial reports. It ensures reliability and relevance in financial reports.

29) Can you name different branches of accounting?

There are three branches of accounting named as Financial Accounting, Management Accounting
and Cost Accounting.

30) Differentiate Accounting and Auditing?

Accounting is all about recording daily business activities while auditing is the checking that whether all
these events have been noted down correctly or not.

31) Define dual aspect term in accounting?

As the name implies, the dual aspect concept states that every transaction has two sides. For example,
when you buy something, you give the cash and get the thing. Similarly, when you sale something, you
lose the thing and gets the money. So this getting and losing is basically two aspects of every transaction.

32) What do we mean by purchase return in accounting?

It is the term introduced in the records for every defective or unsatisfactory good returned back to its
supplier.
33) Define the term material facts in accounting?

Material facts are the bills or any document that becomes the base of every account book. It means that
all those documents, on which account book is prepared, are called material facts.

34) Have you ever prepared MIS reports and what are these?

Yes, I have prepared few MIS reports during my previous jobs. MIS reports are created to identify the
efficiency of any department of a company.

35) Define companys payable cycle?

It is the time required by the company to pay all its account payables.

36) Define retail banking?

It is a type of banking that involves a retail client. These clients are the normal people and not any
organizational customers.

37) How much mathematics knowledge is necessary or required in accounting?

Not much knowledge but basic mathematical background is required in accounting for operations like
addition, subtraction, multiplication and division.

38) Define bills receivable?

All types of exchange bills, bonds and other securities owned by a merchant that is payable to him are
said as bills receivable.

39) Define depreciation and its types?

By depreciation we mean that a value of an asset is decreasing as it is in use. It has two types such as
Straight Line Method and Written Down Value Method.

40) Differentiate between consignor and consignee?

Consigner is the owner of the goods or you can say he is the person who delivers the goods to the
consignee. The consignee is the person who receives the goods.

41) Define balancing in accounting?

Balancing means to equate both sides of the T-account i.e. the debit and credit sides of a T-account must
be equal/balanced.

42) How much statistics knowledge is necessary or required in accounting?

You must be very good at statistics if you want to do well in accounting. Otherwise, with minimum
knowledge you cannot manage your day to day transactions effectively in accounting.

43) Define Scrap value in accounting?


It is the residual value of an asset. The residual value is the value that any asset holds after its estimated
life time.

44) Define Marginal Cost?

Suppose you have to produce an additional unit of output. The estimated cost of additional inputs to
produce that output is actually the marginal cost.

45) Define Partitioning in accounting?

It is a kind of groups made on the basis of same responses by a system.

46) Differentiate between provision and reserve?

Provisions are the liabilities or the anticipated items such as depreciation. You can say provisions are
expenses. Reserves are the profits of any company and a part of that profit is placed back to the business
to keep it sustainable in tough times of a company.

47) Define Offset accounting?

Offset accounting is one that decreases the net amount of another account to create a net balance.

48) Define overhead in terms of accounting?

It is the indirect expenditure of a company such as salaries, rent dues etc.

49) Define trade bills?

We know that all types of transactions need to be documented. The trade bills are the documents,
generated against each transaction.

50) Define fair value accounting?

As per fair value accounting, a company has to show the value of all of its assets in terms of price on
balance sheet on which that asset can be sold.
51) Explain what is compound journal entry?

A compound journal entry is just like other accounting entry where there is more than one debit, more
than one credit, or more than one of both debits and credits. It is essentially a combination of several
simple journal entries.

52) What are the accounting events that are frequently involved in compound entries?

The accounting events that are frequently involved in compound entries are;

Record multiple line items in a supplier invoice that address to different expenses

Record all bank deductions associated to a bank reconciliation

Record all deduction and payments related to a payroll

Record the account receivable and sales taxes related to a customer invoice

53) Mention the types of accounts involved in double entry book-keeping?


Double entry book-keeping involves five types of accounts,

Income accounts

Expense accounts

Asset accounts

Liability accounts

Capital accounts

54) Mention what are the rules for debit and credit for different accounts to increase the amount in
your business accounts?

The rules for debit and credit for different accounts,

for a capital account, you credit to increase it and debit to decrease it

for an asset account, you debit to increase it and credit to decrease it

for a liability account, you credit to increase it and debit to decrease it

for an expense account, you debit to increase it, and credit to decrease it

for an income account, you credit to increase it and debit to decrease it

55) List out the Stages of Double Entry System?

Recording of transactions in the journal

Posting of journal entry in to the respective ledger accounts and then preparing a trial balance

Preparing final accounts and closing of books of accounts

56) Mention what is the disadvantage of double entry system?

The disadvantage of double entry system,

If there is any compensatory errors, it is difficult to find out by this system

This system needs more clerical labour

It is difficult to find the errors if the errors are in the transactions recorded in the books

It is not preferable to disclose all the information of a transaction, which is not properly recorded
in the journal

57) Mention what is General ledger account?

The General ledger account is an account where the company records all the information for its various
expenses and income types into separate accounts. Such that all the debits and credits pertaining to
that particular type of transaction can be entered in one place and kept balanced.

58) What is the general classification of accounts that usually ledger account involve?
The general classification of accounts that usually ledger account involves are

Assets- Cash, Accounts Receivable

Liabilities- Accounts Payable, Loans Payable

Stockholders equity- Common Stock

Operating revenues- Revenues through Sales

Operating expenses- Rent Expense, Salaries Expense

Non-operating revenues and gains- Investment Income, gain on Disposal of Equipment

Non-operating revenues and losses- Interest Expense, Loss on Disposal of Equipment

59) Mention what are things will not be included in bank reconciliation statement?

In a bank reconciliation statement, following thing can be excluded.

Direct payments made by bank not entered in Cash book

Cheques deposited but not cleared

Cheques dishonoured not recorded in cash book

Wrong debits given by bank

Bank Charges or Interst debited by bank

Banks direct payment not entered in Cash book

60) Under the accrual basis of accounting, when revenues are reported in the accounting period?

When service or goods have been delivered, then revenues are reported in the accounting period.

61) Under what type of account does the unearned revenues fall?

The unearned revenues falls under Liability account.

62) Mention whether the account Cash will be credited or debited, when a company pays a bill?

The account Cash will be credited when a company pays a bill.

63) Mention what is assets minus liabilities?

Assets minus liabilities is equal to owners equity or stockholders equity.

64) Entries to revenues accounts such as Service Revenues are usually?

Entries to revenues accounts such as Service Revenues usually goes into credit side.

65) Explain what is the difference between accumulated depreciation and depreciation expense?

The difference between accumulated depreciation and depreciation expense is that


Accumulated depreciation: It is the total amount of depreciation that has been taken on a
companys assets up to the date of the balance sheet

Depreciation expense: It is the amount of depreciation that is reported on the income


statement. Basically, it is the amount that corresponds only to the period of time indicated in the
heading of the income statement.

66) List out some of the examples for liability accounts?

Some of the examples for liability accounts

Accounts Payable

Accrued Expenses

Short-term Loans Payable

Unearned or Deferred Revenues

Installment Loans Payable

Current Portion of Long-term Debt

Mortgage Loans Payable

67) Explain how you can adjust entries into account?

To adjust entries into account, you can sort entries into five categories.

Accrued expenses: Expenses have been incurred but the vendors invoices are not generated or
processed yet

Accrued revenues: Revenues have been earned but the sales invoices are not generated or
processed yet

Deferred revenues: Money was received in advance of having been paid or earned

Deferred expenses: Money was paid for a future expense

Depreciation expense: An asset purchased in one period must be allocated to expense in each of
the accounting periods of the assets useful life

68) Explain what a deferred asset is and give an example?

A deferred asset refers to a deferred debit or a deferred charge. An example of a deferred charge is
bond issue costs. These costs involves all of the fees or charges that an organization incurs in order to
register and issue bonds. This fees are paid in a near time when the bonds are issued but it will not be
expensed at that time.

69) Mention what is Bank Reconciliation?

A bank reconciliation is a process done by a company to ensure that the companys records (check
register, balance sheet, general ledger account, etc.) are correct and that the banks records are also
correct.
70) Mention what is deposit in transit?

A deposit in transit is a checks and cash that have been received and recorded by an entity, but which
have not yet been entered in the records of the bank where the funds are deposited.

71) Explain what is an over accrual?

An over accrual is a condition where the estimate for an accrual journal entry is too high. This estimate
may apply to an accrual of expense or revenue.

72) Mention what is account receivable?

A short term amounts due from buyers to a seller, who have purchased goods or services from the seller
on credit is referred as account receivable.

73) Explain what are the activities that includes in Cash Flow Statement?

The cash flow statement showcase the cash generated and used during the year or months. Various
activities that are involved for the Cash Flow are

Operating activities business activities accounting to cash

Investing activities sale and purchase of equipment or property

Financial activities- purchase of stock and own bonds

Supplemental information- exchange of significant items that dont involve cash

74) Mention what happens to companys Cash Account if it borrows money from the bank by signing
a note payable?

Due to double entry, the cash account will increase as such the liability account increases.

75) Mention which account is responsible for interest payable?

Account which is responsible or affected by the interest payable is Current liability account

76) Mention what is reversing journal entries?

Reversing journal entries are entries made at the beginning of an accounting period to cancel out the
adjusting journal entries made at the end of the previous accounting period.

77) Mention where do generally accruals appear on the balance sheet?

Accrued expenses usually tend to be extremely short-term. So you would record them within the
current liabilities section of the balance sheet.

78) List out some of the accrued expenses and the accounts in which you would record them?

Wage accrual is entered with a credit to the wages payable account

Interest accrual is entered with a credit to the interest payable account

Payroll tax accrual is entered with a credit to the payroll taxes payable account
79) Deferred taxation is a part of which equity?

Deferred taxation is a part of owners equity.

80) Mention what does the investment of personal assets by the owner will do?

The investment of personal assets by the owner will increase total assets and increase owners equity.

81) What is the equation for Acid-Test Ratio in accounting?

The equation for Acid-Test Ratio in accounting

Acid-Test Ratio = (Current assets Inventory) / Current Liabilities

82) List out things that fall under intangible asset?

Things that fall under intangible asset are,

Patents

Copyrights

Trademarks

Brand names

Domain names, and so on.

83) Mention what is trial balance in accounting?

In accounting, trial balance is an accounting report that lists the balances in each of an organizations
general ledger accounts. This is done at the end of posting journal entry to ensure that there are no
posting errors.

84) Where a cash discount should be recorded in journal entry?

A cash discount should be recorded in journal entry as a reduction of expense in cash account.

85) Mention why some asset accounts have a credit balance?

Some asset accounts have a credit balance due to following reasons,

Receiving and posting an amount that was higher than the recorded receivable

Expenses occurred faster than the agreed upon prepayments

An error caused by posting an amount to a wrong account

The amount of checks written exceeded the positive amount in the Cash account

Continuing to amortize or depreciate an asset after its balance has reached zero

86) Define what is Bad debt expense?

A Bad debt expense is the amount of an account receivable that is considered to NOT be collectible.
87) Explain what is the Master Account?

A Master Account has subsidiary accounts. A master account receivable could be anything, it could be
account receivable for various individual receivable accounts.

88) Mention in which account does the unpresented cheque will get recorded?

The unpresented cheque will get recorded as a credit to the cash account in the companys General
ledger.

89) What knowledge should financial accountant have?

A certified financial accountant should have knowledge about

Accounting principles and practices

Reporting and analysis of financial data

Auditing practices and principles

Account management

Budgets

Software knowledge dealing with Accounting

Knowledge of relevant laws, codes and regulations

90) What are the three factors that can affect your cash flow and business profitability?

The three factors that can affect your cash flow and business profit includes

Cash flows from investing activities: It includes shares, bonds, physical property, machineries,
etc.

Cash flows from operating activities: It does not include cash received from other sources like
investments

Cash flow from financing activities: It includes any activities that involves dividend payments
that the company made to its shareholders, any money that includes stock to the public, any
money borrowed from the lender etc. in other words, it is a report that tells the firm about the
money borrowed and paid out in order to finance its activities.

91) Explain what is accrual accounting?

Accrual Accounting is a method for measuring the performance and position of the company by
identifying economic events regardless of when cash transaction happened. In this method, revenue is
compared with the expenditures, at the time in which the transaction happens rather than when the
payment is made.

92) Explain the term account payable?


Account payable is referred as the amount company owes to its suppliers, its employees, and its
partners. In other words, it is the basic cost levied on the company to run business process that is
outstanding. Account payable for one company may be account receivable for another firm or company.

93) Explain the meaning of long-term notes payable is or long term liabilities?

Long-term notes payable or liabilities are referred for that loan that are not supposed to due for more
than a year. These are the loans from banks or financial institution that are secured against various
assets on the balance sheet, such as inventories.

94) Mention what is the difference between depreciation and amortization?

Capital expenses are either depreciated or amortized based upon the type of asset.

Depreciation Amortization

Depreciate means to lose value of an asset


due to their usage, wear and tear, outdated, Amortize means to write off or pay the debt
etc. over a period of time. Amortization can be for
loans, or it can be for Intangible assets
Depreciation cost is calculated in terms of
tangible assets like furniture, plant & Amortization cost is calculated in terms of
machinery, building, etc. intangible assets like goodwill, trademark,
loans, patents, etc.
The purpose of calculating depreciation costs
recovery The purpose of calculating amortization is also
for cost recovery
The easiest way to calculate depreciation is to
know the loss of value of an asset over its life. Amortization calculates the amount spent
after the intangible assets throughout the life
For example, a car worth $30,000 has
for that asset
estimated the lifetime of 10 years after that it
will have no value in the market. The cost or For example, Pharmaceutical Company spent
loss in value throughout this 10 years is $20 million dollars on a drug patent with a
known as depreciation useful life of 20 years. The amortization value
for that company will be $1 million each year
Various method for depreciation includes
straight line depreciation, declining balance Various method for amortization is negative
method, group depreciation method, unit of amortization, zoning amortization, business
time/production depreciation method, etc. amortization, etc.

95) Mention what does financial statement of the company includes?

Financial statement of the company includes various information like

Balance Sheet ( Assets, liabilities, and equity)

Income statement ( Profit or Loss statement)

Equity statement
Cash flow statement

96) Explain what is working capital?

Working capital is a financial metric that calculates the resources available to the company to finance its
day-to-day operations. It is typically calculated by deducting current liabilities from current assets.

97) Explain what is ledger?

A ledger can be referred as an accounting book that keeps the record of journal entries in a chronological
order to individual accounts. The process of recording this journal entries is known as posting.

98) Mention the types of ledger?

There are three types of ledger

General ledger

Debtors ledger

Creditors ledger

99) Explain what is GAAP?

GAAP means Generally Accepted Accounting Principle; it is a framework of accounting, standards,


procedures & rules determined by the professional accounting industry and practiced by publicly traded
U.S companies all over the U.S.A.

100) Explain what is double-entry accounting? Explain with an example?

Double entry accounting is an accounting system that requires recording business transaction or event in
at least two accounts. It is the same concept of accounting, where every debit account should be
matched with a credit account.

For example, if a company takes a loan from a bank, it receives cash as an asset but at the same time it
creates a liability on a company. This single entry will affect both accounts, the asset accounts, and
the liabilities accounts, such entry is referred as double entry accounting.

101) Explain what does the standard journal entry includes?

A standard journal entry includes, date of business transaction, name of the accounts affected, amounts
to be debited or credited and a brief description of the event.

102) Explain what is liabilities and what all does include in current liabilities?

Liability can be defined as an obligation towards another company or party. It may consist of delivering
goods, rendering services or paying money. They are the opposite of assets, and it may include

Account payable

Interest and dividend payable

Bonds payable
Consumer deposits

Reserves for federal taxes

Short term loans

103) Mention in simple terms what is the difference between Asset, equity, and liabilities?

Asset: What financial institute (bank) or people owe you

Liabilities: It is something you owe people or organization

Equity: It is something you own, for example, the amount of your house loan you paid off
21 Accountancy Interview Questions and
Answers - Freshers, Experienced
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Explain each real account and nominal account with


examples.

Real Account is an account of assets and Liabilities.


Types of Real account

Furniture Account
Land Account
Machinery Account
Building Account
Goodwill Account
Patents & Trade Marks Account.
Nominal Account is an account of incomes or expenses.
Types of Nominal account

Salary Account,
Commission Paid/Received Account,
Telephone Expenses Account,
Wages Account,
Printing & Stationery Account,
Interest Paid/Received Account.

What is the difference between mercantile system and


cash system of accounting?

In mercantile system, expenses are considered as expenses during the period to which
they pertain. Similarly, incomes are considered to be incomes during the period to
which they pertain. This system of accounting is considered to be more ideal. On the
hand, in cash system, expenses are considered to be expenses only when they are paid
for and the incomes are considered to be income when they are actually received. This
system of accounting is mainly used by the organizations established not for earning
the profits.

What are the accounting concepts?

Accounting concepts are the basic assumptions on which the process of accounting is
based.

Following are the accounting concepts

Business Entity Concept


Dual Aspect Concept
Going Concern Concept
Accounting Period Concept
Cost Concept
Money Measurement Concept
Matching Concept

What is owners equity? How will you calculate it?

Owners equity, also known as capital of the business is the claim of the owner of the
business against the assets of the business. Owners equity is calculated by
subtracting equity of creditors from the total equity.

What is double entry Bookkeeping? What are its rules?

Double entry bookkeeping follows the principle according to which every debit has a
corresponding credit; hence total of all debits is always equal to the total of all credits.
In this system, one account is debited and at the same time another account is
credited by the similar amount.

Following are the rules for different account


For Personal Accounts : Debit the receiver, Credit the giver.
For Real Account : Debit what comes in, Credit what goes out.
For Nominal Account : Debit all the expenses, Credit all the incomes.

What is bank reconciliation statement? What are the steps


to prepare it?

Bank reconciliation statement is a statement prepared at periodical intervals, with a


view to indicated the items which cause disagreement between the balances as per the
bank columns of the cash book and the bank pass book on any given date.

Follow the below steps to prepare a bank reconciliation statement

Take the balance either as per cash book or as per pass book as a starting point.
Compare the items appearing in the bank column of the cash book with the item
appearing in the bank pass book.
Tick off the items in the pass book with the entries in the cash book. A list of
unticked items either in cash book or pass book will be found.
Add or deduct items from the balance which has been taken as a starting point.
The resultant figure will be the balance as shown by the pass book or vice versa.

What are the reasons for the difference in the balances as


shown by the cash book and the pass book?

o Cheques deposited into the bank but not yet collected and credited.
o Cheques issued but not yet presented for payment.
o Bank Charges.
o Amount collected or credited by bank on standing instructions.
o Amount paid or debited by the bank on standing instructions.
o Interest credited by bank.
o Interest debited by bank on overdraft.
o Direct payment by customers into the bank account.
o Dishonour of cheques or bills.
o Errors in recording of transactions by either the firm or the bank.

What is the adjustment entries made while preparing the


final accounts from the Trial Balance?

o Closing Stock
o Depreciation
o Outstanding Expenses
o Prepaid Expenses
o Accrued Income
o Income received in advance
o Bad Debits
o Provision for Doubtful Debts
o Provision for Discount on Debtors
o Interest on Capital
o Drawings
o Deferred Revenue Expenditure Written off
o Abnormal Loss due to fire etc.
o Goods distributed as free samples
o Goods sent on approval basis
o Commission payable to the manager

What is debit note and credit note? What is the difference


between them?

Debit note is an intimation sent to a person dealing with the business that his account
is being debited for the purpose indicated therein. It is a note made out with a carbon
duplicate. The original one is sent to the party to whom the goods are returned and the
duplicate copy is kept for office record.
Credit note is an intimation sent to a person dealing with the business that his account
is being credited for the purpose indicated therein.

What is the difference between Cash discount and Trade


discount?

o Cash discount is an allowance made by retailers to the customers for prompt


payment. On the other hand, trade discount is an allowance made by the wholesaler
dealer to retailers off the catalogue or invoice price. This allowance is made between
purchasers and sellers engaged in the same class of trade.
o Cash discount is always allowed or received when payment is made. Trade
discount enables the retailers to sell the products to customers at catalogue or price
list issued by the wholesaler.
o Cash discount is an allowance in addition to the trade discount made by the
seller to the buyer.
o Cash discount is recorded in account books while trade discount is not shown
separately.
o The main purpose of allowing trade discount is to enable the retailers to sell the
goods at list price while the purpose of providing cash discount is prompt payment by
the debtor to the creditor.

What items are included in Profit and Loss account?

o Salaries
o Rent
o Rates and Taxes
o Interest
o Commission
o Trade Expenses
o Printing and Stationery
o Advertisement
o Carriage out, freight out, carriage out
o Repairs
o Travelling expenses
o Samples
o Depreciation
o Apprentice premium
o Life insurance premium
o Insurance premium
o Income tax
o Interest on capital and drawings
o Loss or gain on asset sold
o Discount received and allowed
o Trade discount

What is the difference between a trial balance and a


balance sheet?

o Trial balance is a list of balances from the ledger account while balance sheet is
a statement of assets and liabilities.
o Trial balance contains balances of all personal, real and nominal accounts, while
balance sheet contains balances of only those personal and real accounts which
represent assets and liabilities.
o Trial balance is prepared before preparation of trading and profit and loss
account, while balance sheet is prepared after the preparation of trading and profit
and loss account.
o Trial balance is prepared to check the arithmetical accuracy of posting into
ledger while balance sheet is prepared to indicate the financial position of the
business on a particular date.
o Debt and credit balances are shown side by side while balance sheet is prepared
on a T form basis, the left hand side showing liabilities while right hand side
representing assets.
o Closing stock does not appear in the trial balance while it is shown on the assets
side of balance sheet.

What is Contingent Liabilities?

Contingent liability is an obligation, relating to a past transaction or other event or


condition, that may arise in consequence, as a future event now deemed possible but
not probable. Thus such liabilities as may arise in future are called contingent
liabilities. For example: guarantee to a bank for loan advanced to a third party, possible
penalties, fines and penalties payable to the government or income tax authorities etc.
Future losses from natural calamities are not contingent liabilities. They are not
recorded in books of account. They do not appear on the liabilities side of the balance
sheet. They are shown by way of a footnote at the bottom of the balance sheet.

Explain convention of materiality?

This convention proposes that while accounting for the various transactions, only those
transactions will be considered which have material impact on profitability or financial
status of the organization and other insignificant transactions will be ignore. In keeping
with the principle of materiality, unimportant items are either let out or merged with
other items. Sometimes, such items are shown as footnotes or in parentheses
according to their relative importance.

What are the important terms used in balance sheet?

Assets

Current assets and fixed assets


Tangible assets and Intangible assets
Equity is a claim which can be enforced against the assets of the firm in the court. Thus
equity refers to a claim held by

An owner only,
A creditor only,
An owner and the creditor both.
Liability

Current Liability
Long term Liability or fixed Liabilities
Contingent Liabilities

What is Deferred Revenue Expenditure? Give some


examples.

Deferred Revenue Expenditure is a type of expenditure which does not result into the
acquisition of any fixed asset and the benefits from such expenditure is not received
during the period which they are paid for.
For example - Initial Advertisement Expenditure, Research and development
Expenditure, Preliminary Expenses.

Define Trial Balance. What are the main characteristics


and uses of a trial balance?

Trial balance is a list of all balances standing on the ledger accounts of a firm at any
given time.

Following are the main characteristics of a trial balance.

It is a statement prepared in a tabular form.


It has two columns: one for debit balances and another for credit balances.
Closing balances as shown by ledger accounts are shown in the statement.
It is not an account but only a statement of balances.
It is prepared on the basis of balanced accounts.
It is a method of verifying the arithmetical accuracy of entries made in the
ledger.
It helps in preparation of Trading account, Profit & Loss account and Balance
Sheet at the end of the period which exhibit the financial position of the firm.

What are the common errors in accounting? What steps


will you follow to locate errors?

Following are the common errors in accounting:

Errors of Omission
Errors of Commission
Errors of Principle
Compensating Error
To locate the errors in the trial balance follow the below steps:

Check the total of all the subsidiary books, cash book and trial balance.
Ensure that all the opening balances have been correctly brought forward in the
current years books of account.
Ensure that all the ledger accounts have been properly balanced and the
balances of all the ledger accounts have been reflected in the Trial Balance.
The difference in trial balance should be halved to locate such errors.
If the difference in the trial balance is divisible by 9 without any reminder, it may
indicate the transposition or transplacement of the amounts.
The trial balance of the current year can be compared with the trial balance of
the previous year to locate certain highlighting error.

What is the relation between journal and ledger?

o The journal is the book of first entry whereas the ledger is the book of second
entry.
o The journal as a book of source entry ordinarily has greater weight as legal
evidence than the ledger.
o The journal is the book for chronological record whereas the ledger is the book
for analytical record.
o The unit of classification of data within the journal is the transaction; in the
ledger the unit of classification of data within the ledger is the account.
o The process of recording in the journal is called journalizing, the process of
recording in the ledger is called posting.

List down the errors which affect Trial Balance and errors
which do not affect Trial Balance.

Errors which affect the agreement of trial balance:

Wrong totaling of subsidiary books.


Posting on the wrong side of an account
Omission of posting an amount in the ledger
Posting of wrong amount
Error in balancing
Errors which do not affect the agreement of trial balance:

Error of Principle
Errors of Omission
Errors of Commission
Recording of wrong amount in the books of prime entry or subsidiary books.
Compensating Errors.
1. What are the different branches of accounting?
2. What is the difference between cost accounting, financial accounting and managerial
accounting?
3. What is the difference between book keeping and accounting?
4. What are the important terms which are used in accounting?
5. What is personal account, real account and nominal account?
6. Explain dual aspect concept in accounting?
7. What is the difference between mercantile system and accrual system of accounting?
8. What are bills receivable and bills payable?
9. What are the accounting concepts? Explain each of them.
10. What are the accounting principles?
11. What is owners equity? How will you calculate it?
12. What are the rules of Debit and Credit?
13. What do you understand by the term assets and liabilities?
14. What is double entry book keeping?
15. What is bank reconciliation statement? What are the steps to calculate it?
16. What is overhead in accounting terms?
17. What is the difference between cash flow and fund flow statements?
18. What is debit note and credit note? What is the difference between them?
19. What are the golden rules of accounting?
20. What is an adjusting journal entry?
21. What is deferred account?
22. Explain Accounting 101?
23. What are accounting entities?
24. What is the Provision? What is the Entry for Provision?
25. What is the Importance of accounting standards?
26. What are the functions of accounting?
27. What is Contingent Liabilities?
28. Why Accounting is important in business?
29. What are the four classifications of Bad and Doubtful Debts as per the context of the
Bank?
30. What is an operative accounts?
31. What is the difference between Accounts and Finance?
32. What is FBT (Fringe Benefit Tax)?
33. What is the relationship between bookkeeping and accounting?
34. Why does the accounting equation have to balance?
35. What is the difference between accounting and bookkeeping?
36. What is accounting period?
37. What is an accounting loss?
38. What is an EA in accounting?
39. What is the software applications used for accounts receivable?
40. What is inventory management?
41. What do you mean by Working Capital?
42. Define "book value" as applied to accounting?
43. What are the basic assumptions in accounting?
44. What is accounting normalization?
45. What are the various items fall under balance sheet?
46. What is the difference between cash basis and accrual basis balance sheet?
47. How do you pass a journal entry for purchase order in books of account?
48. What do you understand by Contingent liability?
49. How to prepare funds flow statement?
50. What is gross profit margin?
51. What is accounting report?
52. What are the different kinds of MIS reports?
53. What is meant by appropriation?
54. What do you understand by inter company settlement?
55. What is the meaning of TDS? How it is charged?
Common Finance Interview
Questions (and Answers)
The WSP Blog > IB Interview Tips

121 Comments

With the start of a new academic year,


we know that finance interviews are again at the forefront of many of
your minds. Over the next few months, well be publishing most
frequently asked technical finance interview questions and answers
across a variety of topics accounting (in this issue), valuation, corporate
finance to get you prepared.
Before we get to accounting questions, here are some interview best
practices to keep in mind when getting ready for the big day.

1. Be prepared for technical questions. Many students erroneously


believe that if they are not finance/business majors, then technical
questions do not apply to them. On the contrary, interviewers want
to be assured that students going into the field are committed to
the work theyll be doing for the next few years, especially as many
finance firms will devote considerable resources to mentor and
develop their new employees.

2. One recruiter weve spoken to said while we do not expect liberal


arts majors to have a deep mastery of highly technical concepts, we
do expect them to understand the basic accounting and finance
concepts as they relate to investment banking. Someone who cant
answer basic questions like walk me through a DCF has not
sufficiently prepared for the interview, in my opinion.

3. Another added, Once a knowledge gap is identified, its typically


very difficult to reverse the direction of the interview.

4. Keep each of your answers limited to 2 minutes. Longer answers


may lose an interviewer, while giving them additional ammunition
to go after you with more complicated question on the same topic.

5. Its ok to say I dont know a few times during the interview. If


interviewers think that youre making up answers, theyll continue
probing you further, which will lead to more creative answers, which
will lead to more complicated questions and a slow realization by
you that interviewer knows that you dont really know. This will be
followed by uncomfortable silence. And no job offer.

Now, on to Accounting Questions

Accounting is the language of business, so dont underestimate the


importance of accounting questions. Some are easy, some are more
challenging, but of all of them allow interviewers to gauge your
knowledge level without the need to ask more complex valuation/finance
questions.Below we have selected most common accounting questions
you should expect to see during the recruiting process.

Q: Why do capital expenditures increase assets (PP&E), while other cash


outflows, like paying salary, taxes, etc., do not create any asset, and
instead instantly create an expense on the income statement that
reduces equity via retained earnings?

A: Capital expenditures are capitalized because of the timing of their


estimated benefits the lemonade stand will benefit the firm for many
years. The employees work, on the other hand, benefits the period in
which the wages are generated only and should be expensed then. This is
what differentiates an asset from an expense.

Q: Walk me through a cash flow statement.

A. Start with net income, go line by line through major adjustments


(depreciation, changes in working capital and deferred taxes) to arrive at
cash flows from operating activities.

Mention capital expenditures, asset sales, purchase of intangible


assets, and purchase/sale of investment securities to arrive at cash
flow from investing activities.

Mention repurchase/issuance of debt and equity and paying out


dividends to arrive at cash flow from financing activities.

Adding cash flows from operations, cash flows from investments,


and cash flows from financing gets you to total change of cash.

Beginning-of-period cash balance plus change in cash allows you to


arrive at end-of-period cash balance.
Q: What is working capital?

A: Working capital is defined as current assets minus current liabilities; it


tells the financial statement user how much cash is tied up in the
business through items such as receivables and inventories and also how
much cash is going to be needed to pay off short term obligations in the
next 12 months.

Q: Is it possible for a company to show positive cash flows but be in grave


trouble?

A: Absolutely. Two examples involve unsustainable improvements in


working capital (a company is selling off inventory and delaying
payables), and another example involves lack of revenues going
forward.in the pipeline

Q: How is it possible for a company to show positive net income but go


bankrupt?

A: Two examples include deterioration of working capital (i.e. increasing


accounts receivable, lowering accounts payable), and financial
shenanigans.

Q: I buy a piece of equipment, walk me through the impact on the 3


financial statements.

A: Initially, there is no impact (income statement); cash goes down, while


PP&E goes up (balance sheet), and the purchase of PP&E is a cash outflow
(cash flow statement)

Over the life of the asset: depreciation reduces net income (income
statement); PP&E goes down by depreciation, while retained earnings go
down (balance sheet); and depreciation is added back (because it is a
non-cash expense that reduced net income) in the cash from operations
section (cash flow statement).

Q: Why are increases in accounts receivable a cash reduction on the cash


flow statement?

A: Since our cash flow statement starts with net income, an increase in
accounts receivable is an adjustment to net income to reflect the fact that
the company never actually received those funds.

Q: How is the income statement linked to the balance sheet?

A: Net income flows into retained earnings.

Q: What is goodwill?

A: Goodwill is an asset that captures excess of the purchase price over


fair market value of an acquired business. Lets walk through the following
example: Acquirer buys Target for $500m in cash. Target has 1 asset: PPE
with book value of $100, debt of $50m, and equity of $50m = book value
(A-L) of $50m.

Acquirer records cash decline of $500 to finance acquisition


Acquirers PP&E increases by $100m
Acquirers debt increases by $50m
Acquirer records goodwill of $450m

Q: What is a deferred tax liability and why might one be created?

A: Deferred tax liability is a tax expense amount reported on a companys


income statement that is not actually paid to the IRS in that time period,
but is expected to be paid in the future. It arises because when a
company actually pays less in taxes to the IRS than they show as an
expense on their income statement in a reporting period.

Differences in depreciation expense between book reporting (GAAP) and


IRS reporting can lead to differences in income between the two, which
ultimately leads to differences in tax expense reported in the financial
statements and taxes payable to the IRS.

Q: What is a deferred tax asset and why might one be created?

A: Deferred tax asset arises when a company actually pays more in taxes
to the IRS than they show as an expense on their income statement in a
reporting period.

Differences in revenue recognition, expense recognition (such as


warranty expense), and net operating losses (NOLs) can create
deferred tax assets.

I hope you enjoyed this article. Please feel free to write me with any
comments or recommendations