Accounting one word questions

Top 20 Accounting Interview Questions and Answers

Accounting Interview Questions are the different types of frequently asked questions related to the concept of accounting, which one must know to understand the different aspects of accounting.

Accounting is such a vast topic that so many technical questions can be asked. Still, each question can be answered in many different ways. In this article, we have put together a list of the top 20 accounting interview questions and answers so that you can give your best shot in the accounting job interview. If you are new to accounting, you can also look at this basic accountingAccounting is the formal process through which a company attempts to present its financial information in a way that is both auditable and usable by the general public. read more course.

Part 1 – Core Accounting Questions

Question #1- What are the pre-requisites of revenue recognition?

Revenue can be recognized when the following criteria are fulfilled:

• There is an arrangement with the buyer indicating that the sale is supposed to occur. This arrangement can be in the form of a legal agreement, a purchase order, or an email confirming that the buyer is placing an order.
• The delivery of services or products is completed. Revenue cannot be recognized for not delivering goods or services.
• The price of the services or products can be determined with certainty. The arrangement mentioned in point (a) will generally specify the cost of the products/services. If not, then the market price can be used as well.
• Revenue collection can be reasonably determined. For clients with whom the business has been done in the past, data analysis of previous receivables can be used to determine the timely receivable of collections. Credit ratings, market reputation, and references can be checked for new clients to determine the probability of collection.

Delivery of product can be determined easily with the help of the Goods / Material Receipt Note or the Lorry Receipt. But in the case of delivery of services, this seems to be a bit tricky because there might not be a physical transfer of property/goods in this case. So to ensure services have been delivered, timesheets of people who have worked on the project, the final design, or such deliverables can be used as a reference.

Question #2 – How important is documentation when it comes to accounting?

I believe that the accounting team of any company is responsible for presenting an accurate and fair view to the shareholders and the management of the company. The accounting team is like the watchdog of the organization. This is why documentation becomes very important in accounting. Appropriate documentation needs to be checked and maintained so that a proper audit trailThe audit trail is the chronological record bearing the documentary evidence to certify the source of financial data of the company. It even traces the series of activities undertaken by the business in a certain period to ensure data accuracy.read more is maintained and justified as and when required.

If you can prepare a list of all critical/vital documents for the sector you are going to an accounting interview, it will help you win very good brownie points with the interviewer.

Question #3 – What are Accounting Standards?

Some standards need to be followed by all businesses while maintaining their books of accounts. It makes the financial statementFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more meaningful, comparable, and statutorily compliant. These are more like a set of rules to be followed so that financial statements of different organizations are made on the same lines. So the users of the financial statements know the assumptions behind the financial statements and can easily compare the financial statements across companies and sectors.

Generally Accepted Accounting PrinciplesGAAP (Generally Accepted Accounting Principles) are standardized guidelines for accounting and financial reporting.read more

Question #4- What is a FIXED ASSET register?

A fixed asset registerA fixed assets register is a catalog of a business’s fixed assets, carrying details like their purchase price, depreciation values, and current location to document the course of their useful life accurately. It helps a business maximize the utility of its fixed assets such as machinery, building, vehicle, and the like.read more is a document/register which maintains a list of all fixed assets available with the organization. It is maintained historically, and it also contains data on assets that are sold/written off. Some of the critical details to be mentioned in the FAR are the date of acquisition of an asset, cost of acquisition, rate of depreciation, accumulated depreciationThe accumulated depreciation of an asset is the amount of cumulative depreciation charged on the asset from its purchase date until the reporting date. It is a contra-account, the difference between the asset’s purchase price and its carrying value on the balance sheet.read more to date, depreciation for the current period, selling price of the asset, if any, date of transfer, location of the asset (in case of multiple business locations, this field is essential), asset number (a unique asset number should be assigned to every asset for ease of tracking. This is especially helpful for assets where quantity is more than one like laptops).

A summarized form of a Fixed Asset Register which will form a part of the Financial Statements, is as follows:

	COST	DEPRECIATION	BOOK VALUE
Opening Value	Additions	Deductions	Closing Value	Opening Value	DepreciationDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year. read more for the year	Deductions	Closing Value	Opening Value	Closing Value
A	$ 100	$ 10	–	$ 110	$ 40	$ 10	–	$ 50	$ 60	$ 60
B	$ 200	–	$ 70	$ 130	$ 50	$ 10	$ 30	$ 30	$ 150	$ 100
	$ 300	$ 10	$ 70	$ 240	$ 90	$ 20	$ 30	$ 80	$ 210	$ 160

Physical verification of fixed assets should be done regularly, and comments from these verifications should be updated accordingly. There are times when the asset is recorded in the books, but there is no such asset physically.

Question #5- Which accounting software / ERP, according to you, should be used for maintaining the Accounts of an MNC?

Accounting software sets the foundation of accounting in any organization, and it is crucial to choose software that suits the organization’s needs.

SAP is not just accounting softwareWave Accounting Software, Akaunting Software, Slick Pie Accounting Software, GnuCash Accounting Software, xTuplePostBoks Accounting Software, Inv24 Accounting and Inventory Software, and NCH Express Accounts Accounting Software are among the best accounting softwares available.read more, it is more of an ERP, and I would recommend it to the management if I were appointed as the CFO of a 100 million dollar MNC. It has adequate controls, multiple modules with access limitations, various reports can be extracted, and customization is also possible.

However, the cost of SAP is on the higher side. It is the trade-off between risk and returns, which justifies the high cost of the ERP given the volume and scale of the business.

It is important to make yourself clear about the organization’s size and then correlate the usage of the ERP with the size. This is required because if you are interviewing for a start-up where survival is the focus rather than the effectiveness of controls, they will prefer Tally, which will be very cost-efficient.

Question #6 – What is the significance of reconciliationReconciliation is the process of comparing account balances to identify any financial inconsistencies, discrepancies, omissions, or even fraud. At the end of any accounting period, reconciliation involves matching balances and ensuring that debits (credits) from one account for one transaction is same as the credit (debits) to another account for the same transaction.read more in accounting?

Reconciliation is a must when it comes to accounting. One set of records should be matched/reconciled with another so that records are updated quickly. It also helps verify if any incorrect entry/amount is posted in the books. Some essential types of reconciliations are bank reconciliationsCustomers perform bank reconciliation to tally their records with their respective bank’s statements because there may be differences between the customer’s books of accounts and those of the bank.read more (bank ledger in our books vis-a-vis bank statement), vendor reconciliation (vendor ledger in our books vis-a-vis our ledger in vendor’s books), and intercompany reconciliations, etc. In addition, internal reconciliations should also be done. These include quantity reconciliation of closing stockClosing stock or inventory is the amount that a company still has on its hand at the end of a financial period. It may include products getting processed or are produced but not sold. Raw materials, work in progress, and final goods are all included on a broad level.read more, cost of goods sold, reconciliations, etc.

The frequency of these statements should be monthly/quarterly / annually, depending on the volume of transactions associated with each one of these. For details, have a look at the Reconciliation of BooksCompanies do reconciliation prior to closing their books of accounts to match balances in different accounts and to account for the double effect of journal entries. It assists in ensuring that the books are up to date and that there is no manipulation, fraud, missing, or incorrect entries in the firm’s books of accounts.read more.

Question #7 – Explain the procurement process in brief

The procurement process starts with a purchase requisition or a purchase request from a particular department. It is then verified and approved by the HOD. Next, a purchase order is created for purchased items based on the purchase requisition. At this step, the F&A team’s responsibility is to check the rates, delivery milestones, place of delivery, payment terms of the vendor, contractual obligations, etc., and then issue a purchase order to the vendor. Finally, the vendorA vendor refers to an individual or an entity that sells products and services to businesses or consumers. It receives payments in exchange for making items available to end-users. They constitute an integral part of the supply chain management for providing raw materials to manufacturers and finished goods to customers.read more will give their acceptance of the purchase order.

Goods will be delivered at the warehouse/place of delivery, and a material receipt note will be created. Purchase can thus be accounted for in the books if everything is in line with the PO or contract. Payment will then be released as per the payment terms.

Some of the key documents which should be thoroughly verified during the accounting process are:

1. Purchase Requisition
2. Purchase Order (and Contract where there is a pre-existing contract with the vendor)
3. Vendor Invoice
4. Material Receipt Note
5. Delivery Challan
6. Documentation for evaluation of rates at which product is procured
7. Tax-related documentation, if any.

Question #8 – What, according to you, is the importance of budget in any organization?

The budget sets the tone for the organization, i.e., what is the approach to the management for the coming year? Is the management planning to be aggressive with its sales targets or planning to cut down costs, or wants to maintain a steady pace just like last year? It is also very important to check expenses and create a culture where employees start taking responsibility. Employees tend to be careful with their approach as they know that all current year numbers will be tracked and then compared to the budgets allotted to them and their team.

Organizations generally prepare the Profit & Loss budget as this is what management wants to track. But a working capital budget is also equally important as it helps to arrange funds on a timely basis. Based on the P&L budget and the working capital budget, a Budgeted Balance Sheet can also be prepared. Also, look at What is Budgeting?Budgeting is a method used by businesses to make precise projections of revenues and expenditure for a future specific period of time while taking into account various internal and external factors prevailing at that time.read more

Question #9 – What are the expense provisions? Is it important to book these provisions?

Very put, provision is an amount of profit put aside on the books to cover an expected / potential expense in the foreseeable future. In day-to-day accounting, there is a high chance that expenses already incurred in the given period may not be booked. The reasons for this could vary, e.g., the vendor is yet to raise an invoice, or let’s say that the invoice is raised once in 6 months only, and at the year-end, we have already availed services of 3 months. A provision should be created in the books for these expenses, which we have already availed. Expenses incurred in a given financial year should be booked in the same year to maintain the true and fair view of the financial statements. But it can’t book expenses for any reason; then, the provision is the next best thing to do.

Accountants are prudent, and thus the effect of losses/expenses is taken into the books even if there is a potential expense. Still, on the other hand, potential revenue is not taken into the books. Keep this in mind because there is a trick question about the provision of income that you expect to incur in the future.

Part 2 – Accounting and Financial Analysis Questions

Question #10 – Explain the difference between working capital and available cash/bank balance.

Working capital is the day-to-day funds requirement for any business. Cash and bank balance are a part of any organization’s total working capital availability. However, working capital is more than just cash and bank balances. Current assetsCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more and liabilities also make up for the business’s working capital.

Let me explain using an example. Let us assume that $ 5000 is receivable from a debtor on 1-Apr-17, and $ 4000 is also payable to a creditor on the same day. However, your organization does not have sufficient cash or bank balance to pay off the debtor. Therefore, the simple solution is to recover the funds from the creditor and pay the same to the debtor. This is how the day-to-day fund requirement of the company gets managed by maintaining appropriate working capital, which need not only be balanced in the bank or cash in hand.

The formula to calculate working capital = Current Assets – Current Liabilities; looks fairly simple, but working capital management practically involves – debt management, inventory management, revenue collection, short-term investments, and planning payments as per the networking capital inflow.

Question #11 – Assume you are given financial statements of three different competitors. You must ascertain which of these three is in the best financial shape. What are the two main parameters that you will use to judge?

The two parameters which I would like to check are:

a) Correlation between revenue and profit of the organization – A company with a higher revenue is not necessarily doing well.

E.g., Let us say that the revenue of Company A is $ 1000 but against which it has booked heavy losses. On the other hand, Company B is only $ 500, but it has already broken even and is earning a profit of around 7% of total revenue. Needless to say that Company B is more efficient and profitable. The management of this company is moving in the right direction. The more the profit, the better the dividend declaredDividend declared is that portion of profits earned that the company’s board of directors decides to pay off as dividends to the shareholders of such company in return to the investment done by the shareholders through the purchase of the company’s securities.read more for its shareholders and the better its capacity to pay off the debt and interest.

b) Debt-equity ratio – A proper balance needs to be maintained between the two – debt and equity. Only debt means high-interest costs. Only equity means that the company is not leveraging the opportunities available in the market for lower interest rates.

Tip 1: Liquidity is another parameter that can be mentioned if required. For this, you can calculate the working capital of each company and make conclusions. The working capital should not be too high, which results in the blocking of the company’s funds, nor should it be too low, which will not fulfill its day-to-day funding requirements.

Tip 2: Interview preparation should include the study of key ratios of the given industry and the company’s competitors. When answered with the ratios, the above question will create a bigger and better impact on the interviewer. Have a look at this complete guide to Ratio Analysis FormulaRatio analysis is the quantitative interpretation of the company’s financial performance. It provides valuable information about the organization’s profitability, solvency, operational efficiency and liquidity positions as represented by the financial statements.read more

Question #12 – Since you mentioned that MS Excel would be your best friend, give us three instances in which Excel will make your life easier

• Various reports can be extracted from the ERP. However, reports are often required in specific formats, and this may not be possible in the ERP. This is where excel comes into the picture. Data can be sorted and filtered, redundant data fields can be deleted, and the data can then be presented in a customized format.
• Excel is also required for linking multiple sets of data. So different reports can be extracted from the ERP using the VLOOKUP in ExcelThe VLOOKUP excel function searches for a particular value and returns a corresponding match based on a unique identifier. A unique identifier is uniquely associated with all the records of the database. For instance, employee ID, student roll number, customer contact number, seller email address, etc., are unique identifiers.
  read more / hlookup functionHlookup is a referencing worksheet function that finds and matches the value from a row rather than a column using a reference. Hlookup stands for horizontal lookup, in which we search for data in rows horizontally.read more. They can be clubbed into one report.
• The use of Excel becomes the most important for doing various reconciliations. These cannot be done in the ERP. E.g., if I need to do a vendor ledger balanceA ledger balance is an opening balance that remains available during the start of each business day. It comprises of all the deposits and withdrawals, used in the calculation of the total funds left in an account at the end of the previous day.read more reconciliation, I will extract the vendor ledger from the ERP in Excel and get a similar Excel from the vendor for his ledger. All the reconciliations will then have to be done in Excel only.
• Also, most organizations make their financial statements in Excel as they have to adhere to the specific statutory format, which may not be extracted from the ERP. So again, Excel acts as a savior in this case.

Brushing up basic Excel will come in handy during the interview. Some of the formulae that one needs to know are sum, sumproduct, sumif, countifThe COUNTIF function in Excel counts the number of cells within a range based on pre-defined criteria. It is used to count cells that include dates, numbers, or text. For example, COUNTIF(A1:A10,”Trump”) will count the number of cells within the range A1:A10 that contain the text “Trump”
read more, subtotal, min, max, vlookup, hlookup, pivot tables, round, etc. So have a look at this.

Question #13 –Suggest improving the working capital flow of the company

According to me, stock-in-hand can be the key to improving the company’s working capital. Out of all the components of working capitalMajor components of working capital are its current assets and current liabilities, and the difference between them makes up the working capital of a business. The efficient management of these components ensures the company’s profitability and provides the smooth running of the business.read more, the stock is controllable by us. We can pressurize our debtorsA debtor is a borrower who is liable to pay a certain sum to a credit supplier such as a bank, credit card company or goods supplier. The borrower could be an individual like a home loan seeker or a corporate body borrowing funds for business expansion.
read more to pay us instantly, but we cannot have direct control over them because they are separate legal entities, and in the end, they are the ones who give us business. We can tend to delay payments of our suppliers, but it spoils business relations and hampers the goodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company’s net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company’s net identifiable assets from the total purchase price.read more in the industry. Plus, if we delay payments, they might not supply goods in the future. Keeping liquidity in the form of funds in the bank can help the working capital flow, but it comes at an opportunity cost. Keeping all this in mind, I believe that inventory managementInventory management in business refers to managing order processing, manufacturing, storage, and selling raw materials and finished goods. It ensures the right type of goods reach the right place in the right quantity at the right time and at the right price. Thus, it maintains the product availability at warehouses, retailers, and distributors.read more can go a long way in improving the company’s working capital. Excess stocking should be avoided, and the high stock turnover ratio.

This answer is also generic. Some industries work on negative working capitalNegative Working Capital refers to a scenario when a company has more current liabilities than current assets. It implies that the available short-term assets are not enough to pay off the short-term debts. read more such as e-commerce, telecommunication, etc. So please do a bit of research about working capital before answering.

Question #14 – What does the cash flow statement say about the company?

It is very interesting to correlate the cash flow statement and the profit and loss statement of the company. I am trying to say that high revenue does not mean that the company has a high availability of cash. If the company has excess liquid cash, it does not mean that the company has earned a profit.

Cash flowCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more shows how much CASH the company has generated in the given year. It can also show if the company is in a position to pay for its operations soon. This helps to answer what investors want to know before investing – will the company be able to pay the interest/principal/dividends as and when due? Earning profit is one thing, but being able to generate cash when the company needs to pay its debts is another thing.

The cash flow statement has three segments – Cash Flow from operationsCash flow from Operations is the first of the three parts of the cash flow statement that shows the cash inflows and outflows from core operating business in an accounting year. Operating Activities includes cash received from Sales, cash expenses paid for direct costs as well as payment is done for funding working capital.read more, Cash Flow from investing activitiesCash flow from investing activities refer to the money acquired or spent on the purchase or disposal of the fixed assets (both tangible and intangible) for the business purpose. For instance, the purchase of land and joint venture investment is cash outflow, while equipment sale is a cash inflow.read more & Cash Flow from financing activities. Operations related to day-to-day operations help the company earn revenue. Investing activities show the company’s capital expenditureCapex or Capital Expenditure is the expense of the company’s total purchases of assets during a given period determined by adding the net increase in factory, property, equipment, and depreciation expense during a fiscal year.read more. Financing activitiesThe various transactions that involve the movement of funds between the company and its investors, owners, or creditors in order to achieve long-term growth are referred to as financing activities. Such activities can be analyzed in the financial section of the company’s cash flow statement.read more show activities such as borrowings, shares issues, etc.

Question #15 – What is the financial impact of buying a fixed asset?

From the financial statement point of view, the following will be the impact:

• Income Statement – Buying will not directly impact the income statement. However, you will charge depreciation as an expense to the income statement year on year.
• Balance Sheet – Fixed assets will increase, whereas current assets (cash paid) will decrease if the payment is made in the same financial year. If the payment is not made in the same financial year, then there will be an increase in current liabilities instead of a decrease in current assets.

Also, when depreciation is charged to the income statementThe income statement is one of the company’s financial reports that summarizes all of the company’s revenues and expenses over time in order to determine the company’s profit or loss and measure its business activity over time based on user requirements.read more, the asset will be reduced yearly.

• Cash flow statement – There will be a cash outflow shown under the cash from investing activities section of the cash flow statement.

Part 3 – Personality Questions in Accounting Interview

Question #16 – What are the challenges faced by an Accountant?

An accountant must coordinate with various teams such as customer support, marketing, procurement, treasury, taxation, business development, etc. Therefore, I would say that the availability of data/details/documents from these teams on a timely basis is a key challenge an accountant faces. As already mentioned, documentation plays a key role in accounting, and without proper documentation, an accountant will not be able to post entries in the accounting system. Also, management’s delay in accounting is not appreciated as updated reports / MIS are created from these accounting records.

This answer should be linked to any question on the key strengths/weaknesses of the candidate. So going with the flow of the above question, the candidate can also mention that people management is his or her key strength. Given the opportunity, he/she will be able to tackle this kind of challenge smoothly and make sure that data availability is not a hindrance.

Question #17 – If you get this job, what will your routine day of 8 hours be like?

I believe the accounting ERP used by your organization and Microsoft Excel will be my best friends, and I will be spending maximum time with these two applications at work.

A routine day will invoice the following core activities:

1. Posting various journal entries in the ERP
2. Extracting/maintaining/updating different reports required by the management (some of these reports are a list of payable amounts for the next three working days, fund position at the end of the day, debtors aging report, etc.)
3. Scrutiny and reconciliation of different ledgers
4. Checking invoices and other supporting documents required to be part of the invoice
5. Coordinating with different teams for documents / data / details

The above answer is very generic. This should be fine-tuned as per the exact job description. For example, let us say you are applying for the position of Accounts ReceivableAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year.
read more Accountant. In this case, you need to mention revenue reports, follow up with customers for payment whenever due, revenue recognition, raising invoices to customers, etc. On the other hand, if the profile is that of Accounts Payable Accountant, you need to mention purchase orders, materials receipt, releasing payment of vendors on a timely basis, etc.

Question #18 – If you are made the CFO of this company, what are the changes you would like to recommend to the Board of Directors of the companyBoard of Directors (BOD) refers to a corporate body comprising a group of elected people who represent the interest of a company’s stockholders. The board forms the top layer of the hierarchy and focuses on ensuring that the company efficiently achieves its goals.
read more?

This is a tricky question and needs to be answered with care. It is tricky to answer this because change is acceptable to most organizations only when it leads them on the path of progress. Being the CFO is a lot of responsibility, and when you directly talk about changing things in an organization you are not even part of, it can show a lot of arrogance. At the same time, not wanting to change means you can be easily bent, which is not a good trait for a CFO. So the answer should be framed as follows:

Being the CFO of the company, my first task will be to understand the business, the Being the company’s CFO, my first task will be to understand the business, the revenue model, and the processes followed at a broader level. Next, they got acquainted with the management and the team reporting to me before suggesting any changes; knowing these things is very important. Once I spend enough time in the system, I would then be able to suggest changes based on industry best practices, responses to the competitors, and shareholderA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company’s total shares.read more expectations.

Question #19 – Tell me something about yourself

Interviewers do not ask this question to know your background. They already have your resume right in front of them, stating the facts about your academic and work experience background. Therefore, you should not repeat these things, e.g., I have completed Graduation with 85%, or I have done my Masters in Accounting from XYZ College is not what the interviewer wants to hear. Instead, the interviewers want to know what makes you a proper fit for the given job and whether you will be able to take the responsibility associated with the job.

So, instead of mentioning these things that the interviewer already knows, use this opportunity to tell them about your work experience and achievements. Properly framing this answer is the key to cracking the accounting interview. Start with your best achievement and tell them why you love what you do and how you are best at your job.

Question #20 – Share a stressful situation you have been a part of and how have you handled the situation?

The accounting and finance field is under constant pressure. It is not a job that can be taken lightly, so the interviewers ask these questions to test your composure during such stressed times. Take care to mention a genuinely stressful situation, and do not crib about the work pressure you have faced daily, as no one wants to hire someone who cannot handle work pressure.

Also, please be realistic about the stressful situation you mention. It should not sound fake. The situation can be employee fraud, massive damages to the company on account of natural calamities, income tax scrutiny of years where you were not even a part of the organization, etc.

Mentioning the situation won’t be enough. You will have to elaborate on your steps during these stressful times. You will have to show that you went out of the way to get things done, and the decisions taken were in the company’s best interests in those stressed times.

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