For an interview related to accounting, there are some basic questions which almost every interviewer can ask. This article deals with 35 basic accounting interview questions, the answers to which must be known to all potential accounting interviewees.
What is Accounting?
The American Institute of Certified Public Accountants (AICPA) defines Accounting as the art of recording, classifying, and summarising the transactions and events that are in monetary terms efficiently and effectively and interpreting the results. The main aim behind the accounting process is the ascertainment of an organisation’s operation’s net results and financial position so that the firm can communicate the same with the interest parties or users of Accounting Information. The nature of Accounting is dynamic and analytical and hence, requires special abilities and skills in an individual to interpret the information better and effectively.
1. Tell me something about yourself.
- Start by mentioning your name and where you belong.
- You can mention your Educational Background, achievements and relevant job/internship experience you have.
- You can also mention any relevant skill you have, like any foreign language you know, or if you are a part of any society/organisation/NGO.
- Add a little bit about how you developed an interest in Accounting.
2. Why did you choose Accounting as a Profession?
- Shed light on your interest towards the accounting field.
- Mention the things which made you pursue accounting.
- Advantages of various careers in accounting, such as Accountant, Accounting Clerk, Bookkeeper, Budget Analyst, Chief Financial Officer, Controller, Payroll Clerk, etc.
- Stable Career
- Demanding Career
- Career Growth Aspects
3. What do you think are some of the necessary skills that an Accountant should have?
- Critical thinking skills
- Ability to analyse data
- Theoretical and practical knowledge of accounting concepts
- Frequent hands-on accounting software
- Ability to prepare financial statements
- Time management skills
- Document Reporting Skills
4. Can you name different Branches of Accounting?
There are various branches of accounting, namely Financial Accounting, Managerial Accounting, Cost Accounting, Auditing, Tax Accounting, Fiduciary Accounting, Project Accounting, Forensic Accounting, Fund Accounting, Government Accounting, Political Campaign Accounting, International Accounting, etc.
5. What is the difference between Cash and Accrual Basis of Accounting?
Cash Basis of Accounting is defined as a method of accounting in which the transactions are recorded on the basis of actual receipt or payment in cash. This means that the income is recorded when cash is received, and expenses are recorded when cash is paid. It does not matter whether the amount which is received or paid belongs to the past, present or future year. However, the Accrual Basis of Accounting is a system where the transactions are recorded whenever they occur, no matter if actual cash is received or not in the case of income or actual cash is paid or not in the case of payment. This means that the income is recorded in the accounting books when it is earned, regardless of whether it is due or received.
6. Is Accountancy and Accounting the same?
Accountancy and accounting are different from each other, as they have many differences. Accounting simply is, described as the act of recording day-to-day transactions. Accounting starts from bookkeeping involving various activities like recording the transactions, analysing and summarising the transactions, interpretation and communication of data, etc. However, Accountancy can be defined as the systematic knowledge of accounting, which focuses on the principle of gathering all the prevalent information and using the financial data.
7. Name some of the Basic Accounting Concepts you know.
Basic Accounting Concepts are the basic ideas or assumptions under the theory base of accounting that provide certain working rules for the accounting activities of an organization. There are 13 important basic accounting concepts that are to be followed by companies to prepare true and fair financial statements. These are Business Entity Concept, Money Measurement Concept, Going Concern Concept, Accounting Period Concept, Objectivity Concept, Materiality Concept, Conservatism Concept, Consistency Concept, Full Disclosure Concept, Matching Concept, Revenue Recognition Concept, Dual Concept, and Cost Concept.
8. Have you worked on any Accounting Software? If yes, name them.
Some of the accounting software are QuickBooks Online, Xero, FreshBooks, Wave Financial, Oracle Netsuite, Zoho, Melio, ZarMoney, Plooto, Sage, Neat, etc.
- Mention the accounting software you have worked on to the interviewer.
- You can mention the one you like the most and the one you do not like.
- You can present any of your past projects related to accounting software, if any.
9. What is the difference between Accounts Payable and Accounts Receivable?
Accounts Payable is described as the monetary debts that an enterprise owes to its suppliers or creditors for products or services it has received. Whereas, Accounts Receivable is described as the monetary amount that an enterprise owes to its debtors for the products or services it has.
10. What are some of the common mistakes in Accounting?
There are many, yet so small errors which generally the accountant does due to lack of attention. These mistakes are so small that it is nearly impossible/difficult to find these mistakes, in case such mistakes have happened and there is now any discrepancy in financial statements. Some of such common errors are:
- Reconciliation Error: These types of errors include the mistakes, which happen during the introduction of consistency in books of accounts.
- Principle Error: Principle Error is defined as the error when an accounting entry seems to violate fundamental accounting principles.
- Entry Reversal Error: When an entry is passed in the wrong direction, the error is known as Entry Reversal Error.
- Transposition Error: This error includes the interchanging of two side-by-side digits. For instance, 72 get recorded in place of 27.
- Duplication Error: Duplication error arises when there is more than one entry of the same transaction.
- Omission Error: Omission error refers to the error when there is no entry for a transaction.
- Data Entry Error: Data entry error occurs when some wrong information gets recorded in the books of accounts.
11. What is a Bank Reconciliation Statement?
A statement showing all the items of difference between the bank column of the Cash Book and the bank balance depicted in the Pass Book on a particular date and for a particular period of time is called Bank Reconciliation Statement. It is a statement prepared on a particular date to reconcile the bank balance of the Cash Book with the balance as per the Pass Book or vice-versa.
According to Carter ‘Bank Reconciliation Statement is such type of a statement which is prepared to compare the balance shown by a bank statement with the balance shown by Cash Book’.
12. What do you understand by GAAP and IFRS?
GAAP or Generally Accepted Accounting Principles are the rules and procedures defined and developed by the Financial Accounting Standards Board (FASB) that an organisation has to follow for the proper creation of financial statements consistent with the industry standards. The primary objective of GAAP is to ensure a basic level of consistency in the accounting statements of an organisation. International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board. The main aim of IFRS is to provide guidance on the preparation and presentation of statements related to finance. IFRS is used in over 140 countries.
13. What is the difference between Deferred Tax Liability and Deferred Tax Assets?
Deferred Tax Liability is the tax amount that the company owes, but the amount is not to be paid until the future date, whereas Deferred Tax Asset is defined as the advanced tax amount that the company tends to pay in advance.
14. Do you think Trial Balance depicts Accounting Errors?
Trial Balance is made to find out the accounting errors but the trial balance is unable to detect some errors. These errors include:
- Error of Omission: Errors of Omission occur when a transaction is fully skipped. This means that the transaction has not been recorded either in the Journal or Subsidiary Books.
- Errors of Commission: Errors of Commission occur when a wrong amount has been recorded, either in the Journal or in Subsidiary Books.
- Errors of Principle: Errors of Principle occur when Accounting Principles are not applied or are violated while recording a transaction.
- Compensating Errors: When the wrong amount posted in one account is compensated by the wrong posting of the same amount in another account is called Compensating Errors.
15. Can you mention the Basic Accounting Equation?
Assets = Liabilities + Capital
16. What are Financial Statements and its types?
Financial Statements are statements that serve as a means of communication between the organisation and different users of financial statements regarding the financial position and profitability of the business at the end of a financial year. Any organisation generally have these two financial statements:
- Trading and Profit and Loss Account: It is a financial statement of an organisation that helps in determining the loss incurred or profit earned by the business during a financial or accounting year.
- Balance Sheet: It is a financial statement of an organisation that shows its financial position, liabilities, assets, and owner’s equity as on the date mentioned in the report.
Non-Performing Assets (NPA) is the amount of loan/advance that is not recovered under 90 days due to the failure of repayment by the borrower. The amount of loan which is not repaid to the bank or institutions includes the principal amount and the interest. There are various types of non-performing assets, like Sub-Standard Assets, Doubtful Assets, and Loan Assets.
18. What is Working Capital?
Excess of current assets of an organisation over its current liabilities is known as Working Capital. Simply put, it is the finance available to an organisation for its day-to-day business operations. It can also be defined as that part of total capital, which is required for holding current assets.
19. What is the difference between Account Receivables and Deferred Revenue?
Account Receivables are defined as the payments that are yet to be received against the goods sold, and/or delivered. However, Deferred Revenue is defined as the receipts related to the goods that are yet to be delivered. Account Receivables are shown on the asset side of the balance sheet, and Deferred Revenues are shown on the liabilities side of the balance sheet.
20. How to record PP&E?
PP&E are the tangible, long-term assets namely, Property, Plant, and equipment, that the business holds. PP&E includes every type of long-term tangible asset like equipment, machinery, land, plant, etc. PP&E gets recorded on the assets side of the balance sheet, on the historical cost. Historical cost refers to the cost incurred while bringing the assets, including all the installation costs.
21. Mention some of the Budgeting Methods.
There are various types of budgeting methods, namely, Incremental Budgeting, Activity-based Budgeting, Value Proposition Budgeting, and Zero-based Budgeting.
22. Explain the Matching Principle of Accounting.
Matching concept states that an organisation should recognise its expenses in the same financial year if the expense is related to the revenue of that year. In simple words, if a firm is earning revenue in an accounting period, even though, it incurs the expenses related to that revenue in the next accounting year, the expense will be realised in the same accounting year when the revenue has been realised by the firm.
23. What is Balance Sheet?
Balance sheet is described as a statement depicting all the assets and liabilities of a firm at a certain date. Asset side of the balance sheet records all the properties, whether tangible or intangible, that the firm owns. Tangible assets include plant, machinery, land, building, equipment, etc. Intangible assets include goodwill, trademarks, patents, etc. The liability side of the balance sheet records all the entries that the firm owes to the creditors or any other lender. The liability side of the balance sheet includes loans from banks and creditors, accounts payable, outstanding salaries, owner’s equity etc. At any date, the total of the asset side and liability side of the balance sheet must be equal, depicting the transparency of financial statements. The balance sheet represents a true and fair picture of the financial health of the firm.
24. What is the difference between Inactive and Dormant Accounts?
An inactive Account refers to an account in which there are no customer transactions for a period of 12 months, but if this inactivity continuous for more than 12 months, the account is said to be a Dormant Account.
25. What is Tally Accounting?
Tally Accounting is an ERP software used to record day-to-day monetary transactions of the business. Tally ERP 9 is the latest version of Tally. Tally ERP follows double entry accounting system. Features of Tally:
- Tally supports different languages.
- Tally ERP 9 is the latest version.
- The use of Tally minimises the chances of errors as it is an accounting software that follows a double-entry system.
26. What are Premises in Accounting?
Premises is defined as a physical property, land, or building where the business conducts its operations. Consideration of premises in accounting is an important aspect as it affects the financial statements. Premises are recorded as long-term assets on the assets side of the balance sheet and need to go through the process of depreciation as well (except land).
27. What is VAT?
VAT stands for Value Added Tax, which gets added to the value of products/services at each stage of their product life. It is a type of tax whose price is already included in the price of the product. Nowadays almost all the products we buy have some percentage of VAT added to them.
28. What is the difference between Accounting and Auditing?
Accounting refers to recording the day-to-day business transactions, in order to perform various functions like recording, summarising, and preparation of financial statements. Whereas, Auditing means checking the financial statements in order to detect and rectify errors and to ensure the fairness of financial statements.
29. Explain Depreciation and mention its Types.
Depreciation refers to the decrease in the value of assets of the company over a time period due to use, wear and tear, and obsolescence. In other words, it is the method to allocate the cost of an asset over its useful life. There are various methods of charging depreciation, namely,
Provisions are the present obligation (probability of occurrence is more than 51%) arising out of past events. Provision can be made by retaining the amount by way of providing for any known liability, the amount of which can not be determined accurately. It is shown as a current liability on the liabilities side of the balance sheet and recorded as expenses in the income statement. Provisions are tax-deductible expenses.
Whereas, Reserves are the amount kept aside from a company’s profits for specific purposes or unknown liability in the future, like buying a fixed asset, repayment of debentures, payment of dividends, etc., and also for general purposes as General Reserve. It is an appropriation of profit, and not a charge against profit. Reserves are a part of the owner’s capital/shareholder’s fund, and hence profit is not reduced by making any reserve.
31. What is a General Ledger Account?
General Ledger is a core component of accounting systems used by businesses to record, organise, and summarise financial transactions. It serves as a comprehensive repository that aggregates data from various subsidiary ledgers and journals, providing a holistic view of an organisation’s financial activities. Essentially, a General Ledger is a central hub where all financial data gets stored, creating a chronological and categorised record of an entity’s economic exchanges.
32. What is Assets minus Liabilities?
Assets minus Liabilities show the Owner’s Equity. Owner’s equity can be described as the rights of owners in the assets of the business. Owner’s equity is the indication of the company’s financial health, as more owner’s equity depicts strong financial health and vice-versa. Owner’s equity is calculated as the difference between assets and liabilities. It gets recorded in the balance sheet at the end of the accounting period.
33. What is Cost Accounting?
Cost Accounting is an accounting system that refers to analysing and recording the costs involved in the production of any product. It revolves around cost computation, cost control and cost reduction. Generally, there are two types of costs considered in Cost Accounting:
- Fixed Cost: It refers to the cost of the company, which does not change regularly, like the rent, fixed salary of employees, taxes, insurance, etc.
- Variable Cost: It refers to the cost of a company, which can be changed at any instant, for example, if the cost of any raw product increases, it directly affects the price of the main product.
34. What is the difference between Depreciation and Amortization?
Depreciation refers to the decrease in value of tangible assets over time due to overuse, wear and tear, changes in technology, etc. Amortization refers to the decrease in the value of intangible assets.
35. How many Accounting Standards are there in India?
There are a total of 28 accounting standards in India.
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