Introduction to Accounting Interview Questions
This 2021 accounting Interview Questions article will present the top most important and frequently used accounting interview questions. These questions will help students build their concepts around accounting and help them ace the interview.
The questions in a typical accounting role focus on the candidate’s grasp of accounting basics and the ability to put them into practice. Apart from the theoretical; solutions, it is imperative for the candidate to have a practical understanding and the logic that drives the general practice of accounting. Below are some of the generally asked questions and the probable answers to them.
Part 1 – Accounting Interview Questions (Basic)
This first part covers basic accounting Interview Questions and Answers.
1. Walkthrough the main Financials prepared for a Business Organization?
Answers:
There are four main statements that depict business performance
- Profit & Loss account – This depicts the results of operations through a certain period. It covers the revenues, the costs involved, and the surplus or deficit that was created as a result
- Balance Sheet – This tells the position of assets and liabilities as on a particular date. It is important to assess what is owned by the concern vs what it owes to its stakeholders
- Cash Flow Statement depicts the flow of cash into and out of the concern bifurcated between the three major operations, financing and investing.
- Statement of Changes in Equity – It shows the changes in equity over a period. There could be an addition or reduction in capital or the addition of reserves to contribute to the equity of the concern.
2. What is the Difference between Depreciation and Amortization?
Answer:
Depreciation is the write-off of the tangible assets of concern over a period of time because of the wear and tear associated with it, along with the efflux of time that reduces its efficiency. Whereas amortization is the periodic reduction in the value of intangible assets or a large cost whose benefit will accrue over more than one accounting period.
3. What is the Difference between Reserves and Provisions?
Answer:
Reserves are an apportionment of profits created to strengthen the financial position of a firm. Provisions are set aside to cover a specific liability or pending expense. Reserves are only made when the concern is operating at a profit, whereas provisions are made irrespective of the financial performance of the concern.
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Let us move to the next accounting Interview Questions.
4. What is Working Capital and its Implications?
Answer:
Working capital is defined as the difference between the current assets and current liabilities. It generally gives a measure of the liquidity of a concern and its ability to pay the imminent liabilities without external aid.
5. What is a Deferred Tax Asset / Liability?
Answer:
Deferred tax asset/liability is created because of the difference in the taxation between the normal accounting course and that created by the entity’s taxation authorities. For example, if more payment was made per the taxation rules, it would lead to creating a deferred tax asset and vice versa.
6. What is a Bank Reconciliation Statement?
Answer:
A bank reconciliation statement is prepared to reconnect the difference in entries between the passbook as per company and as per bank records. This statement is prepared to check the difference in timings between the bank and the concern and that there is nothing overlooked in the process.
7. What is Deferred Revenue Expenditure?
Answer:
These represent expenditures whose benefits surpass a single accounting period. The expenditure thus incurred has to be apportioned over the expected life of the benefit. An example could be a substantial outflow incurred on the repairs of a particular asset.
Part 2 – Accounting Interview Questions and Answers (Advanced)
Let us now have a look at the advanced accounting Interview Questions.
8. What are the Different ways of Accounting for Inventory?
Answer:
Inventory can be accounted for in 3 ways:
- LIFO – Last in, first out. The inventory which comes in last in the warehouse is the first to be utilized for production. So, the inventory at hand is the older stock valued at the price at which it was acquired.
- FIFO – First in, first out. The inventory which comes in the earliest is utilized in production. So, the inventory reflects the current prices incurred in purchasing the stock.
- Weighted Average Method – In this case, the inventory is valued at the average cost of the inventory. There are weights assigned to the various batches, and the resultant average is how the stock is valued for the purpose of the inventory.
9. What are Debit and Credit Notes?
Answer:
Debit notes are created by the buyer of goods and sent to the seller when returning the goods, intimating to him that the amount of the goods has been debited in his name. Credit notes are issued by the supplier of goods intimating that the value of goods has been credit in the name of the concern.
10. How is Earning Per Share (EPS) calculated?
Answer:
Earnings per share is a measure of the amount due to be earned by a shareholder on the company’s earnings. It is calculated by profits remaining after distribution to the preferred shareholders divided by the weighted average of the number of equity shares in a year.
11. What are Contingent Liabilities?
Answer:
These are potential liabilities dependent on the happening or non-happening of a particular event that is uncertain. Examples of contingent liabilities could be judicial suits in a court of law.
Let us move to the next accounting Interview Questions.
12. What is meant by Mark to Market Accounting?
Answer:
Mark to market accounting seeks to value assets/liabilities/investments at their present fair value rather than at their historic values. This is vital to ensure the values that get represented in the financials close in on the values as of today rather than their outdated selves.
13. What is the Employee Stock Option Plan?
Answer:
This is a form of compensation granted by the company to its employees to exercise their right of purchasing shares in the future at a specified time and within a specified range.
14. Define a Letter of Credit?
Answer:
It is a guarantee given by a bank on behalf of its customer. The bank backs the customer’s paying ability and guarantees that if the customer is unable to pay in full to the receiver, the bank will take up the onus of the remaining amount.
15. What is Capital Budgeting?
Answer:
It is the planning process wherein the firm introspects the capital expenditure policy of the firm and takes decisions on the procurement, sale or continuation of capital assets in the firm.
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