Updated July 25, 2023
Definition of Accounting Interview Questions
This is an outline of Accounting Interview Questions. 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, the candidate must have a practical understanding and the logic that drives the general practice of accounting.
Part 1 – Accounting Interview Questions (Basic)
This first part covers basic accounting Interview Questions and Answers.
Q1. Walkthrough the main Financials prepared for a Business Organization.
Answers: Four main statements 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 created as a result.
- Balance Sheet – This tells the position of assets and liabilities on a particular date. It is important to assess what the concern owns versus what it owes to its stakeholders.
- Cash Flow Statement depicts the cash flow 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.
Q2. What is the Difference between Depreciation and Amortization?
Answer: Concerns write off the tangible assets over a period of time due to wear and tear associated with them, along with the efflux of time that reduces their efficiency. This process is known as depreciation. Concerns periodically reduce the value of intangible assets or a large cost whose benefit will accrue over more than one accounting period. This reduction process is known as amortization.
Q3. What is the Difference between Reserves and Provisions?
Answer: Concerns strengthen their financial position by creating reserves by apportioning profits. Reserves are created by the concern only when it is operating at a profit. On the other hand, provisions are set aside by the concern to cover specific liabilities or pending expenses. Provisions are made regardless of the financial performance of the concern.
Q4. What is Working Capital and its Implications?
Answer: Working capital is the difference between current assets and liabilities. It generally gives a measure of the liquidity of a concern and its ability to pay the imminent liabilities without external aid.
Q5. What is a Deferred Tax Asset/Liability?
Answer: The difference in taxation between the normal accounting course and the taxation rules set by the entity’s taxation authorities creates a deferred tax asset/liability. For instance, if the entity made more payments according to the taxation rules, it would create a deferred tax asset, and vice versa.
Q6. What is a Bank Reconciliation Statement?
Answer: The concern prepares a bank reconciliation statement to reconcile the difference in entries between the passbook as per the company and bank records. Furthermore, the concern prepares a bank reconciliation statement to verify and address any discrepancies in timing between the bank and the concern, ensuring that nothing is overlooked.
Q7. What is Deferred Revenue Expenditure?
Answer: These expenditures represent costs where the benefits extend beyond a single accounting period. For instance, a substantial outflow incurred for the repairs of a particular asset serves as an example. Therefore, the expenditure incurred needs to be apportioned over the expected life of the benefit.
Part 2 – Accounting Interview Questions and Answers (Advanced)
Let us now have a look at the advanced accounting Interview Questions.
Q8. What are the Different Ways of Accounting for Inventory?
Answer: Inventory can be accounted for in 3 ways:
- LIFO – In LIFO (Last in, first out), the concern utilizes the inventory that comes in last in the warehouse for production, resulting in the older stock being valued at its acquired price.
- FIFO – In FIFO (First in, first out), the concern utilizes the inventory that comes in earliest for production, reflecting the current prices incurred in purchasing the stock.
- Weighted Average Method – In the Weighted Average Method, the concern values the inventory at the average cost of the inventory. Various batches are assigned weights, and the resulting average values the stock for inventory.
Q9. What are Debit and Credit Notes?
Answer: The buyer of goods creates debit notes and sends them to the seller when returning them, informing the seller that the amount of the goods has been debited in their name. Conversely, the supplier of goods issues credits notes, intimating that the value of goods has been credited in the name of the concern.
Q10. 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 dividing the profits remaining after distribution to the preferred shareholders by the weighted average of the number of equity shares in a year.
Q11. What are Contingent Liabilities?
Answer: These are potential liabilities dependent on the happening or non-happening of an uncertain event. Examples of contingent liabilities could be judicial suits in a court of law.
Q12. 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 historical values. This is vital to ensure the values represented in the financials close in on today’s values rather than their outdated selves.
Q13. What is the Employee Stock Option Plan?
Answer: This is a form of compensation the company grants to its employees to exercise their right to purchase shares in the future at a specified time and within a specified range.
Q14. Define a Letter of Credit.
Answer: A bank gives a guarantee on its customer’s behalf. The bank backs the customer’s paying ability and guarantees that if the customer cannot pay in full to the receiver, the bank will take up the onus of the remaining amount.
Q15. What is Capital Budgeting?
Answer: It is the planning process wherein the firm introspects the capital expenditure policy of the firm and makes decisions on the procurement, sale, or continuation of capital assets in the firm.
This is a guide to Accounting Interview Questions and Answers so that the candidate can easily crack down on these accounting Interview Questions. You may also look at the following articles to learn more –