Accounting interview questions – Great Learning

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Accounting Interview Questions
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Introduction

Every business requires the services of an accountant. That is why there are so many accounting jobs available. Having the right accountant is critical to your company’s success. You need someone who can identify areas where you can save money and maximise your budget. In this article, we’ll cover accounting interview questions to help account aspirants to crack the accounts interview.

Top Accounting Interview Questions

1. What is accounting?

According to the American Institute of Certified Public Accounts (AICPA), “Accounting is the art of recording, classifying and summarizing, in a significant manner and terms of money, transactions, and events which are, in part at least, of financial character and interpreting the result thereof.”

2. What is cost accounting?

This type of accounting is more focused on companies of an industrial nature (manufacturing sector). It helps to make a detailed analysis of the unit costs of production, sales and distribution cost, and Factory cost, the production process that the company carries out.

3. What is financial accounting?

Financial accounting is a branch of accounting involving in a process of recording, summarizing, and reporting financial transactions resulting from business operations over some time.

In other words, financial accounting is the field of accounting concerned with the summary, analysis, and reporting of financial transactions related to a business. This involves the preparation of financial statements available for public use

4. What is management accounting?

Managerial accounting is the process of “identification, measuring, analysis, and interpretation of accounting information” that helps business management make sound financial decisions and efficiently manage their day-to-day operations.

In management accounting or managerial accounting, managers use accounting information in decision-making and to assist in the management and performance of their control functions.

5. What is depreciation in accounting?

The term depreciation refers to an accounting method used to allocate the cost of a tangible asset over its useful life. Depreciation represents how much of an asset’s value has been utilized. It allows companies to earn profits from the assets over a while.

In simple words, Depreciation refers to a decrease in the value of assets due to wear and tear or time gap.

There are several methods of computing depreciation are namely-

  • Straight-line method / Orginal value method
  • Diminishing balance method / written down value method
  • Annuity method

6. What is an accrual in accounting?

Human resource accounting is based on which two factors

Human resource accounting is mainly based on 2 factors namely –

Human resource is the measurement of the cost and value of the people in the organization.

Human resource accounting can be defined as a system of accounting that considers human resources as an asset of their organization and all the financial expenses on human resources such as wages, salary, training and other monetary benefits are recorded in the books of account.

The value of human resources is also recorded in the books of account just like other physical possessions. Assessment, budgeting, and reporting the cost of Human resources help the organization in accurately documenting its assets and thus is a very monetary part of every business organization. A financial report of any organization completely depends on the cost of manpower working in that organization.  

8. What are liabilities in accounting?

A liability is something a person or company owes to others, usually a sum of money. Liabilities are repaid over a period of time through the transfer of money, goods, or services. Recorded on the right side of the balance sheet, liabilities include:-

  • Secured loans
  • Unsecured loans
  • Bills payable
  • Deferred revenues and
  • Outstanding expenses Etc.,

Any type of borrowing from persons or banks for improving a business or personal income that is re-payable during a short or long time.

9. What is the double-entry system of accounting?

The double entry system of bookkeeping can be defined as the system of recording transactions having two fundamental aspects – one involving the receiving of a benefit and the other to giving the benefit – in the same set of books.

  • Debit: An entry on the left side of a ledger account.
  • Credit: An entry on the right side of a ledger account.

10. What is drawing in accounting?

Any amount or goods withdrawn by the owner of a business for personal use is called drawings.

The proprietor or the owner utilized the organization/ business money or goods for his own consumption is called drawings.

11. What is a ledger in accounting?

A ledger is a book or collection of accounts in which accounting transactions are recorded. Each account has an opening or carry-forward balance and would record each transaction as either a debit or credit side in a separate column, and then ends with a closing balance.

12. What is capital in accounting?

Property or money used and owned by a business and used to acquire future income or benefits is capital.

In other words, capital means the assets and cash in a business. Capital may either be cash, machinery, receivable accounts, property, or houses. Capital may also reflect the capital gained in a business or the assets of the owner or the net worth of a company

13. What is costing in accounting?

Costing refers to, the estimated cost or proposed cost for the particular activities undertaken by the organization or in simple words, the process of calculating or forecasting a cost.

There are 4 types of costing namely: –

  • Direct costing
  • Indirect costing
  • Fixed costing, and
  • Variable costing

14. What are assets in accounting?

An asset is any resource owned or controlled by a business or an organization.  It is anything (tangible or intangible and fixed or current) that can be used to produce positive economic value. Assets cover money and other valuables belonging to an individual or a business.

There are mainly 2 categories of assets namely:

  • Tangible assets
  • Intangible assets

15. What is the accounting equation?

The accounting equation refers to that a company’s total assets are equal to the sum of its liabilities and its shareholders’ equity. This straightforward number on a company balance sheet is considered to be the foundation of the double-entry accounting system.

The accounting equation is a basic principle of accounting and a fundamental element of the balance sheet. The equation is as follows:

Assets = Liabilities + Shareholder’s Equity

Or

Total equity = Total Assets – Liabilities

16. Who coined the concept of management accounting?

James H. Bliss introduced the concept of management accounting.

17.  What is a journal entry in accounting?

The word journal means a daybook or daily book of accounting. Journal is called the subsidiary book because transactions are recorded in the journal according to debit credit rules. Based on the journal a ledger can be prepared easily and correctly.

The Journal is a book containing a record of each day’s transactions. Journal is a primary book where transactions are recorded in chronological order.

Features of Journal entry are-

  • Book of the primary entry
  • Daily record book
  • Chronological order
  • Use of dual aspects of transactions
  • Use of explanation
  • An equal amount of money
  • Subsidiary book
  • Use of different journal books.

18. What is goodwill in accounting?

Goodwill is an intangible asset that is associated or included with the purchase of one company by another. Specifically, goodwill is the portion of the purchase price that is higher than the sum of the net worth values of all of the assets purchased during the acquisition and the liabilities assumed in the process.

In simple words, the deference value of total assets of the target company and money paid by the acquiring company.

19. What is the accounting cycle?

The accounting cycle is a collective process of identifying, analyzing, and recording the accounting events of a company. It is a standard 8-step process that begins when a transaction occurs and ends with its inclusion in the financial statements.

8-steps of the accounting cycle are-

  • Identifying transaction
  • Record transactions in the journal entry
  • Posting entries into general ledger accounts
  • Preparing trial balance
  • Looking for reasons for misbalances
  • Adjust entries
  • Preparation of financial statements
  • Closing of books

20. What is the provision in accounting?

Provisions in accounting are the amount that is generally put aside from the profit to meet an unexpected future expense or a reduction in the asset value although the exact amount is unknown. Provision can be recorded as a way of recognizing any upcoming or future liabilities.

Examples: – bad debts, depreciation, Reserves for doubtful debts, and Provision for taxation.

21. What are debit and credit in accounting?

Debit means an entry recorded for a payment/expenses made or owed. A debit entry is usually made on the left side of a ledger account. So, when a transaction occurs in a double-entry system, one account is debited while another account should be credited.

Credit is an entry that records (income/profit or gain received) a decrease in assets or an increase in liability as well as a decrease in expenses or an increase in revenue.

22. What are the objectives of accounting?

Major objectives of accounting are given below-

  • To maintain systematic records of financial transactions
  • To provide details of the company’s financial position
  • To analyze the financial statement of the company
  • To provide financial information for the investors
  • To ensure control over the business activity
  • To take better managerial decisions
  • To ensure misappropriation of business funds
  • To fulfill the legal requirements.

23. Who are the users of accounting information?

Users of Accounting Information

  • Investors
  • Lenders
  • Management
  • Supplier & Trade creditors
  • Government
  • Customers
  • Employees
  • Public 

24. What is auditing in accounting?

Auditing means, verification of financial position or numbers as disclosed by the organizational annual financial statements. It is an examination of books of accounts to ascertain whether the financial statements shown are of true and real financial value. Auditing is a part of accounting; it is an examination of the accounting and financial records.

The basic principles of auditing are confidentiality, integrity, objectivity, independence, skills and competence, work performed by others, documentation, planning, audit evidence, accounting system and internal control, and audit reporting.

There are three main types of audits:

  • External audits
  • Internal audits
  • Internal Revenue Service audits.

25. What is the main purpose of financial accounting?

The major purpose of financial accounting is-

  • Accurate transactions record keeping
  • To know the exact Profit/loss measurement
  • Preparation of financial statement
  • Cash flow management/managing cash inflow and outflow
  • Understand the fund needs of the business
  • Periodic reporting and financial analysis of the organizations
  • Business valuation of the organization
  • Filing taxation / Goods and Service Tax (GST) returns
  • Managing operational activity
  • Meeting management expectations

26. What is a trading account in accounting?

An organization/company needs to prepare a trading and profit and loss account first before going on to the balance sheet. Trading and profit and loss accounts are useful in identifying the gross profit and net profits that a business earns.

The intention of preparing a trading and profit and loss account is to determine the profit earned or the losses incurred during the accounting period. A trading account is used to determine the gross profit or gross loss of a business that results from trading activities.

Trading activities are mostly related to the buying and selling and factory (production) activities involved in a business. This account helps them to easily determine the overall gross profit or gross loss of the business.

The amount thus determined is an indicator of the efficiency of the business in buying and selling.

 The formula for calculating gross profit is:

 Gross profit = Net sales – Cost of goods sold

27. What is a balance sheet in Accounting?

A balance sheet is a detailed statement that lists the total assets and the total liabilities of a given business to show its net worth at a given moment in time (like a snapshot).

28. Who is the father of Accounting?

The Italian Luca Pacioli, recognized as The Father of accounting and bookkeeping was the first person to publish work on the double-entry system of bookkeeping.

29.  What is a tally in accounting?

Tally refers to the debit total that needs to match with the credit side of the balance in simple words the total of the assets side should be matched with the liabilities side of the balance sheet.

30. What is a journal in accounting?

A journal is a detailed account of all the financial transactions of a business or organization. It’s also known as the books of original entry as it’s the first entry made in the books of accounts.

In other words, a journal is a detailed account that records all the financial transactions of a business, to be used for the future reconciling of accounts and the transfer of information to other official accounting records, such as the general ledger.

31. Which of the following are tools of management accounting?

There are many tools of management accounting are namely-

  • Analysis of Financial Statements through Ratio Analysis.
  • Return on capital employed techniques.
  • Integrated Auditing.
  • Financial Planning.
  • Marginal costing (including cost volume profit [CVP] analysis).
  • Direct or incremental Costing and differential costing.
  • Standard Costing.
  • Analysis of Financial Statements through comparative statements, trends, graphs, and diagrams.
  • Fund flow and cash flow analysis.
  • Cost Variances.
  • Budget and Budgetary control.
  • Business Forecasting.
  • Project Appraisal or Evaluation.
  • Managerial Reporting.
  • Revaluation Accounting.
  • Decision-making Accounting.
  • Management Information System

32. What are accounting principles?

  • Accrual principle
  • Conservatism principle
  • Consistency principle
  • Cost principle
  • Economic entity principle
  • Full disclosure principle
  • Going concern principle
  • Matching principle
  • Materiality principle
  • Monetary unit principle
  • Reliability principle
  • Revenue recognition principle.
  • Period principle. 

33. What are accounting standards?

Accounting standards are authoritative standards for financial reporting and are the preliminary source of Generally Accepted Accounting Principles (GAAP). Accounting standards specify how transactions and other events are to be recorded, measured, presented and disclosed in financial statements.

34. What is computerized accounting?

Computerized accounting refers to carrying out accounting functions or processes using computers. It involves recording and analyzing financial transactions electronically through accounting software.

A computerized accounting system is an accounting information system that processes financial transactions and events as per Generally Accepted Accounting Principles (GAAP) to produce reports as per user requirements.

 Examples of accounting software packages designed for small businesses include QuickBooks, Tally ERP9, and Bookkeeper.

35. How many accounting standards are there?

There are 32 Accounting standards namely-

AS Titles of AS
AS 1 Disclosure of Accounting Policies
AS 2 Valuation of Inventories
AS 3 Cash Flow Statements
AS 4 Contingencies and Events Occurring After the Balance Sheet Date
AS 5 Net Profit or Loss for the Period, Prior Period Items, and Changes in Accounting Policies
AS 6 Depreciation Accounting
AS 7 Construction Contracts
AS 8 Accounting for Research and Development
AS 9 Revenue Recognition
AS 10 Accounting for Fixed Assets

36. What is GAAP in accounting?

GAAP: Generally Accepted Accounting Principle

GAAP is a combination of authoritative standards and commonly accepted ways of recording and reporting accounting information. GAAP aims to improve the clarity, consistency, and comparability of the communication of financial information.

 GAAP may be contrasted with pro forma accounting, which is a non-GAAP financial reporting method. Internationally, the equivalent to GAAP in the U.S. is referred to as International Financial Reporting Standards (IFRS). 

37. What is the cash basis of accounting?

Cash basis refers to a major accounting method that recognizes revenues and expenses at the time cash is received or paid out. This contrasts with accrual accounting, which recognizes income at the time the revenue is earned and records expenses when liabilities are incurred regardless of when cash is received or paid.

 When transactions are recorded on a cash basis, they affect a company’s books upon exchange of consideration; therefore, cash basis accounting is less accurate than accrual accounting in the short term.

38. What is royalty in accounting?

Royalty means the payment that is made to the owner/proprietor of an asset or property for usage. Royalties enable another individual, who is not the original creator of the property or asset, to use the property in exchange for a payment or other terms. Generally, payments are made in the case where (Intellectual property rights) trademarks, copyrights, and patents are required by another individual.

Royalties involve a formal agreement and the owner can earn income through royalties. The terms of the royalties depend on the particular royalty.

For example:

In the case of books/textbooks, royalties are based on how many books have been sold. 

39. What is amortization in accounting?

Amortization is an accounting technique used to periodically decrease the book value of a loan or an intangible asset (like Goodwill, Trademarks) over a set period. Concerning a loan, amortization focuses on spreading out loan payments over time. When applied to an asset, amortization is similar to depreciation.

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