Top 25 Accounting Interview Questions & Answers
Accountants play an essential role in ensuring the financial stability of industries and organizations. Their tasks cover various financial domains, making it vital for future accountants to be well-prepared for both full-time and part-time roles.
To aid your preparation, we have put together a comprehensive list of basic accounting interview questions and answers that will help you practice and improve your understanding of accounting concepts. These questions are suitable for all types of accounting positions and can serve as a valuable resource during interviews.
Basic Accounting Interview Questions and Answers
The primary role of accountants is to manage the financial responsibilities of industries and organizations, therefore, they must meet certain requirements. If you intend on taking an interview soon, whether it is a full-time role or a part-time job, it is smart to prepare. We have curated a list of basic accounting questions to help you practice and enhance your knowledge.
Q1. Why did you decide to work in accounting?
Answer: I believe accountants significantly impact every organization and enhance its financial situation. Due to my long-standing interest in working with statistics, becoming an accountant will provide me with a feeling of purpose and give me the most job satisfaction. I’ll be able to make the most of my mathematical abilities in this career.
Q2. What distinguishes a capital transaction from a revenue transaction?
Answer: Capital and revenue transactions are both included in accounting. Revenue transactions are transactions pertaining to daily operations. While capital transactions are transactions pertaining to long-term goals. The purchase of real estate is an example of a capital transaction, which is a transaction with a long-term goal.
Q3. What is a balance sheet?
Answer: A balance sheet is a financial document that presents the total assets, liabilities, and capital of a company at a specific point in time.
Q4. What distinguishes accounts receivable from deferred revenue?
Answer: The difference between the two is:
- Deferred Revenue: Money that a business has received but has not yet earned is known as deferred revenue. Consider a client who pre-pays to have their house renovated. Until the business completes the service and renovates the house, its money is recorded as deferred revenue.
- Account Receivable: This is the amount of money that a client owes for services already rendered by a business. When a business renovates a client’s house, but the client hasn’t yet paid for it, the amount owed goes into accounts receivable until the invoice is paid in full.
Q5. What do you understand by working capital?
Answer: A working capital is the capital resource that a specific company can depend on in the short term to operate. These company-owned resources include cash, the company’s range of financial products, and other investments.
Q6. What elements impact the company’s cash flow?
Answer: Different types of corporations require different sources of cash flow. For instance, trading companies generate revenues from their trading activities, while manufacturing outlets rely on the sales of their products. On the other hand, government undertakings receive grants from the government as their primary source of income. Regardless of the type of corporation, cash flow is affected by key factors, such as day-to-day operations, investments, financing activities, and inventory.
Q7. How many types of accounting do we have?
Answer: There are two primary categories of accounting: financial and managerial. Financial accounting focuses on examining and disclosing transaction data, while managerial accounting has a wider scope, analyzing a company’s financial status and future prospects.
Q8. What do you understand by Tally accounting?
Answer: Tally accounting is an enterprise resource planning (ERP) system utilized by both small and large organizations to perform various business tasks including finance, inventory management, payroll processing, and more. With its robust capabilities, this all-in-one solution enables efficient management of financial activities for companies of all sizes. Its widespread adoption stems from its ability to streamline accounting processes while minimizing mistakes and optimizing time usage.
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Q9. When would you choose to capitalize on a purchase over an expense?
Answer: In most cases, an expense is appropriate when the company intends to use the purchase immediately and it does not qualify as an investment. On the other hand, purchases are expected to be utilized over a longer period of time, they should be recorded as capital assets.
Q10. What is the meaning of premises in terms of accounting?
Answer: In the field of accounting, the term “premises” refers to the total value assigned to all fixed assets included on a balance sheet.
Q11. What steps can the accounting department take to decrease human error?
Answer: There is no one correct method for responding to this inquiry. You may choose to highlight particular abilities that can enable the accounting department to avoid errors, such as:
- A keen eye for detail
- Efficient time management
- Strong organizational skills
Q12. What do you understand by VAT?
Answer: VAT is an acronym for value-added tax. It is a form of indirect tax levied on the selling price of a product. It is a representation of the amount of value that has been added to the product during its manufacturing process.
Q13. What do you understand by accounting equations?
Answer: This fundamental principle states that a company’s assets are equal to the sum of its liabilities and equity. The importance of this equation extends to the balance sheet, which provides an overview of a company’s financial position by listing its assets, liabilities, and equity. A thorough knowledge of the accounting equation can aid in making informed decisions and maintaining accurate financial records for any enterprise.
Q14. What can you say about GST
Answer: The abbreviation GST stands for the Goods and Services Tax, which was first implemented on July 1, 2017. It is an instance of destination-based indirect taxation. This type of taxation replaces a number of other indirect taxes, such as the value-added tax (VAT), excise tax, etc. The idea behind enacting this tax in India was to create a single, all-encompassing market tax while minimizing the effects of various layers of taxes.
Intermediate Accounting Interview Questions and Answers
Here are the top accounting questions asked in an interview:
Q15. What is EBITDA? Explain its connection to accounting
Answer: EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization, is a key financial metric that provides valuable insight into a company’s overall financial performance. By excluding certain expenses from the calculation of profits, EBITDA offers a clearer picture of how effectively a company can generate revenue.
Q16. What distinguishes accounting from auditing?
Answer: Accounting involves the process of creating financial statements, such as balance sheets, income statements, and cash flow statements. On the other hand, auditing is a thorough examination of these financial records to ensure their accuracy and compliance with accounting principles.
Q17. How can you tell if a company can fulfill near-term goals?
Answer: An effective method for assessing a company’s capability to meet short-term goals is by utilizing the current ratio. This calculation involves dividing the company’s current assets by its current liabilities, also known as working capital. By doing so, it provides insight into how much of the company’s debts can be covered with its existing assets.
Q18. How do you distinguish amortization from depreciation?
Answer: Amortization refers to the process of dividing the cost of an intangible asset over its useful lifespan. Depreciation, on the other hand, involves recording expenses for a tangible asset as it is utilized, in order to account for its expected decrease in value (i.e. the gradual decline in value of tangible things. These resources may include furniture and fittings, machinery, structures, computers, and electrical devices. This decrease in value is the consequence of a variety of events, including user wear and tear or natural degradation).
Q19. Explain the term retail banking
Answer: Retail banking is focused on providing services such as deposit-taking, lending, and basic financial advice to individuals and small businesses. Unlike commercial or investment banking, retail banking does not involve high-risk activities or large-scale financial transactions. Instead, it aims to meet the everyday banking needs of individuals and small businesses by offering services such as checking and savings accounts, loans, credit and debit cards, mortgages, and wealth management.
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Q20. What makes accrual accounting and cash accounting different?
Answer: The concept of accrual accounting involves recognizing financial transactions and events regardless of whether the corresponding cash has been received. An illustration would be when a business offers deferred payment options, where the amount owed or promised will still be included in their records even if it is to be collected at a future date.
Cash accounting only records financial transactions when cash is exchanged. As such, any deferred payments made to a company will not be recognized as income until they have been received. In other words, revenue from deferred payment plans cannot be recorded until the actual receipt of funds by the company has occurred. Therefore, businesses using this method may experience delays in reporting their earnings since it relies solely on actual cash receipts, rather than promises or future payments.
Q21. Explain the term trade bills
Answer: A trade bill is a legal document that serves as proof of a transaction between two parties. It contains details such as the seller’s and buyer’s names, quantity purchased, price, terms and conditions of sale, payment due dates, etc. In simple words, it is an official record created for every business deal made by individuals or companies.
Q22. What does the accounting term “dual aspect” mean?
Answer: The concept of dual aspect refers to the fact that every transaction has two aspects, resulting in an impact on two separate accounts located on opposite sides. For instance, when making a purchase, you would exchange cash for the product or service and when selling something, you receive money in return for your sale. In essence, any financial activity involves both giving and receiving funds as its key components. Henceforth, it becomes essential to record these transactions in two places.
The basic accounting equation’s definition of duality is:
- Assets = Liabilities + Capital
Q23. What are dormant and inactive accounts?
Answer: Inactive accounts refer to closed accounts, which will remain unused in the future. Dormant accounts, on the other hand, are inactive but can potentially be utilized again.
Q24. What are balance sheet accounts?
Answer: Balance sheet accounts, also referred to as permanent accounts, are a type of account that does not have its balance closed at the end of the financial year. Instead, it is carried over and remains open for the next accounting period. You can enhance your knowledge of Excel sheets by taking this comprehensive advanced Excel course.
Q25. What is the cost objective? Why is it done?
Answer: Cost objective refers to the method of documenting all expenses accrued by a company in its regular operations. Its purpose is to determine the ratio of profit and loss for the organization, as well as identify strategies to manage costs effectively.
Conclusion
An accounting interview requires more than just a thorough understanding of technical concepts. It also entails demonstrating strong problem-solving abilities, keen attention to detail, and effective communication skills. To improve your chances of securing the accounting job you want, make sure to practice answering common accounting interview questions. Additionally, besides practicing basic accounting interview questions and answers, discover and learn how to answer common questions HR asks during an interview.
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