Accounting is an indispensable aspect of every industry globally, regardless of size and structure. There is a constant demand for skilled accountants specialising in various domains of this expansive area. Accounting offers diverse job opportunities, from financial management and tax planning to bookkeeping and auditing.
Aspirants with a flair for handling complex spreadsheets and numbers can exploit this field to build a successful career in accounting. However, this requires a strong foundation in accounting principles, an in-depth knowledge of the various tax regulations and a calm mind.
If you are preparing for an interview in this field, and don’t know where to start, here’s the perfect guide. Given the expansive nature of financial accounting, applicants are often at a loss as to the most important accounting interview questions they should prepare. Read this blog to learn all about basic accounting questions for interview and unlock a successful career as an accountant.
Accounting Interview Questions and Answers
An accounting interview can comprise a range of topics testing the interviewee’s expertise and knowledge. These may include basic questions on financial statements and technical questions on cost, management, and tax accounting. The questions asked in the interview will vary depending on the interviewee’s experience level, the position they are applying for and the company in question. Below is a list of the most common questions an aspiring accountant can expect to face in the interview.
- What measures a company’s strength? Describe them briefly.
A company’s financial health is measured by evaluating its financial statements. These are, namely — cash flow statement, income statement and balance sheet. These three statements reflect a company’s liabilities and assets, revenues and costs and cash flows from investing, operating, and financing operations. Traders use these informative tools to assess a company’s underlying value and financial strength.
- How many types of accounts are there, and what are they?
Primarily, there are 3 types of accounts, which are — personal, real and nominal.
Personal Account – These accounts are related to a person, entity, or legal body or can also be representative. Examples include personal accounts, Salary Payable A/c, etc.
Real Account – These accounts are related to properties or assets and can be categorised into tangible and intangible real accounts. Tangible real accounts refer to assets with a physical existence or which are tangible. In contrast, intangible real accounts include assets without real existence, like patents, trademarks, copyrights etc. Examples include building A/c, inventory A/c, cash A/c, etc.
Nominal Account – Accounts related to incomes and gains or expenses and losses come under this category. Examples include conveyance A/c, rent A/c, wages A/c, etc.
- Define working capital.
Working capital, used in day-to-day trading, is computed as current assets minus current liabilities. Working capital in a simple accounting system focuses on the capital resources a firm may rely on to function in the short term. These resources include cash, a portfolio of financial goods, and other investments made by the firm.
- State the difference between active and dormant accounts.
Inactive and dormant accounts are terms used in accounting that refer to the status of accounts with specific characteristics that set them apart.
A current or savings account is referred to as inactive when no transaction has been made through it for a period of more than 12 months. On the other hand, any account that has not been used for any transaction, including withdrawals, transferring funds, payment through cheque, etc, for 24 months will be classified as dormant.
- What is TDS?
TDS, an acronym for tax deducted at source, is a mechanism of direct taxation under which the tax payable to the central government is deducted at the source of income or during income payout. It is shown in the assets section of a balance sheet.
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Basic Accounting Questions for Interview for Freshers
Aspiring accountants fresh out of college can expect basic accounting questions for interview like the ones mentioned below:
- What is the basic accounting equation?
The formula for the basic accounting equation is:
Assets= Liabilities+ Owners Equity
- What are the different branches of accounting?
There are ten branches of accounting in total. They are tax accounting, financial accounting, management accounting, cost accounting, auditing, fiduciary accounting, forensic accounting, project accounting, fund accounting, government accounting, international accounting and political campaign accounting.
- What are the components of the balance sheet?
Assets, liability and equity are three components of a balance sheet.
Asset refers to any tangible or intangible resource owned by an economic entity or business. They are convertible into cash. Assets can be further classified into current assets and long-term assets.
Liability is an accounting term for any debt or obligation a company owes to an outside party. It can be anything from bonds issued to creditors to bills to be paid to suppliers to rent, salaries etc. Liabilities are of three types — current, fixed and contingent liabilities.
Shareholder equity, also known as equity, is the claim of a shareholder, creditor, or owner. It equals a company’s total assets deducting the debt it owes to non-shareholders or liabilities.
- What is the purpose of accounting?
Accounting aims to record any financial transaction and summarise, analyse and report the recorded financial transactions of a business to tax regulators or oversight agencies.
- What do you understand by double-entry bookkeeping?
A double-entry bookkeeping system is one in which each transaction, i.e. debits and credits, has a matching entry. The double-entry accounting method is based on the idea that every transaction has two elements and impacts two ledger accounts. Every company transaction involves two or more accounts in the double-entry bookkeeping.
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Accounting Interview Questions and Answers for Experienced
Facing an accounting interview can be a nerve-wracking experience, especially for experienced professionals looking to take the next step in their careers. Senior accountant interview questions will likely be based on practical experience and proficiency in handling various accounting methods. Here is a compiled list of questions and insightful answers tailored to help experienced candidates excel in their following job interviews.
- Which statement can be used to review the overall health of a business? Give reasons to support your answer.
Technically all three statements, that is, the cash flow statement, income statement and balance sheet are important to give an overview of a business’s financial position. However, the cash flow statement can be used to observe the amount of cash a company generates, which can help get a fair idea of the company’s current financial health.
- Can you describe a complex financial analysis or problem-solving situation you’ve handled in your previous role?
In my previous role as a Senior Accountant at XYZ Company, we encountered a situation where the company’s revenue recognition method needed to be updated due to changes in accounting standards. I led a cross-functional team to analyse the impact on financial statements, restructure the revenue recognition process, and ensure compliance with the new standards. This involved extensive data analysis, collaboration with sales and legal teams, and detailed documentation to present to auditors.
- How do you ensure accuracy and compliance in financial reporting?
Maintaining accuracy and compliance in financial reporting is paramount. I implement rigorous reconciliation processes, perform regular internal audits, and use accounting software to ensure data integrity. Staying up-to-date with evolving accounting standards and regulations is equally important, and I attend relevant seminars and webinars to remain informed and adapt our reporting practices accordingly.
- What are the accounting software and applications you have used experience with?
I have experience working with several accounting software and applications, including QuickBooks, Xero, FreshBooks, Microsoft Dynamic GP, etc.
- How do you handle tight deadlines and high-pressure situations in the accounting world?
I’ve learned to prioritise tasks in a fast-paced accounting environment by identifying critical deadlines and allocating resources accordingly. Effective time management, clear communication, and delegating tasks are crucial. When faced with high-pressure situations, I remain calm, focus on the task at hand, and collaborate with team members to find solutions.
- How do you handle depreciation in financial statements, and what methods have you used?
Depreciation allocates the cost of long-term assets over their useful lives. There are various methods like straight-line, declining balance, and units-of-production that I have used. I chose the method most suitable for my work based on the asset’s characteristics, industry standards, and financial reporting requirements.
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Technical Accounting Interview Questions
Below are some more questions aspiring financial analysts, accountants, bookkeepers or those appearing for any other accounting-related role can expect.
- Can you explain the accrual accounting concept and how it differs from cash accounting?
Accrual accounting records transactions when they occur, regardless of when the actual cash exchange occurs. It recognises revenue when earned and expenses when incurred, offering a more accurate representation of a company’s financial health.
Cash accounting, on the other hand, records transactions only when cash is exchanged. Understanding that accrual accounting provides a better long-term view of a company’s financial position is crucial.
- How do you handle bad debt and doubtful accounts? What methods have you used to estimate and account for them?
Bad debt refers to accounts receivable that are unlikely to be collected, while doubtful accounts have a certain degree of uncertainty. I used methods like the allowance or direct write-off methods and the matching principle. Based on economic indicators and other historical factors, we can use either.
Direct write-offs are more appropriate when accounts are identified as uncollectible. In the matching principle, expenses are matched to related revenues generated within the same accounting period.
- Can you explain the concept of goodwill in accounting?
Goodwill represents the excess amount a company pays for another company in a merger or acquisition beyond the fair market value of its identifiable tangible and intangible assets. Factors like reputation, customer loyalty, and strategic value form its crux.
- What is the purpose of the cash flow statement, and how does it differ from the income statement?
The statement of cash flows provides a meticulous account of a company’s cash outflows and inflows from operating, investing, and financing activities. It highlights how cash is generated and used during a specific period. In contrast, the income statement shows a company’s revenues and expenses, resulting in net income.
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Navigating accounting interviews as an experienced professional requires a firm grasp of accounting principles, practical experience, and the ability to apply your knowledge to real-world scenarios. Preparing thoughtful responses to these common questions can confidently showcase your expertise and increase your chances of acing the interview. It is important to remember that interviewers seek candidates who can communicate effectively, think critically, and demonstrate a genuine passion for the accounting world.
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