Top 20 Accounting Interview Questions and Answers
Accounting Interview Questions are the different type of frequently asked questions which are related to the concept of the accounting of which one must have knowledge in order to gain understanding about the different aspects of the accounting.
Accounting is such a vast topic that there are so many technical questions that can be asked. Still, each question can be answered in many different ways. In this article, we have put together a list of 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 have a look at this basic accounting 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 take place. 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 delivered 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 business is done in the past, data analysis of previous receivables can be used to determine the timely receivable of collections. For new clients, credit ratings, market reputation, references can be checked 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 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 has the responsibility of 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 trailAudit 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. is maintained and justified as and when required.
If you can prepare a list of all critical/vital documents for the sector in which you are going to an accounting interview, then it will help you win very good brownie points with the interviewer.
Question #3 – What are Accounting Standards?
There are a set of standards which need to be followed by all business while maintaining their books of accounts. It is done to make the financial statementFinancial 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. 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 PrinciplesGenerally Accepted Accounting PrinciplesGenerally accepted accounting principles (GAAP) are the minimum standards and uniform guidelines for the accounting and reporting. These standards prohibit firms from engaging in unethical business activities and enable for a more accurate comparison of financial reports to investors.
Question #4- What is a FIXED ASSET register?
A fixed asset register 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 of 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 depreciationAccumulated 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. till 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 summarised form of a Fixed Asset Register which will form a part of the Financial Statements is as follows:
|Opening Value||Additions||Deductions||Closing Value||Opening Value||Depreciation 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 physically there is no such asset.
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, therefore, crucial to choose software which suits the need of the organization.
SAP is not just accounting softwareAccounting 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., it is more of an ERP, and I would recommend it to the management if I were to be appointed as the CFO of a 100 million dollar MNC. It has adequate controls, multiple modules which have access limitation, 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 size of the organization 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 using Tally, which will be very cost-efficient for them.
Question #6 – What is the significance of reconciliation 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 on a timely basis. It also helps to verify if any incorrect entry/amount is posted in the books. Some basic types of reconciliations that are essential are bank reconciliations (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. Internal reconciliations should also be done. These include quantity reconciliation of closing stock, 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 BooksReconciliation 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..
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. Based on the purchase requisition, a purchase order is created for already purchased items. At this step, it is the F&A team’s responsibility 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. The vendor will give their acceptance to the purchase order.
Goods will be delivered at the warehouse/place of delivery, and a material receipt note is 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:
- Purchase Requisition
- Purchase Order (and Contract where there is the pre-existing contract with the vendor)
- Vendor Invoice
- Material Receipt Note
- Delivery Challan
- Documentation for evaluation of rates at which product is procured
- 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 keep a check on 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?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.
Question #9 – What are expense provisions? Is it important to book these provisions?
Very simply put, provision is an amount of profit that is 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 have already been availed by us. 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 in nature, 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 which you expected 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 is a part of the total working capital availability of any organization. Working capital is much border than just cash and bank balances. Current assetsCurrent 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. and liabilities also make up for the working capital of the business.
Let me explain using an example. Let us assume at $ 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. 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; This looks fairly simple, but working capital management practically involves – debt management, inventory management, revenue collection, short-term investments, planning payments as per the networking capital inflow.
Question #11 – Assume you are given financial statements of three different competitors. You are required to 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. More the profit, the better will be the dividend declared for its shareholders and better 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 also another parameter which 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 funds of the company, 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. The above question, when answered with the ratios, will create a bigger and better impact on the interviewer. Have a look at this complete guide to Ratio Analysis FormulaRatio 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.
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, many times reports 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, filtered, redundant data fields can be deleted, and the data can then be presented in the customized format.
- Excel is also required for linking multiple sets of data. So different reports can be extracted from the ERP and then using the VLOOKUP in Excel / hlookup functionHlookup 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.. 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 balanceLedger 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. 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 of the 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 Excels will come in handy during the interview. Some of the formulae which one needs to know are sum, sumproduct, sumif, countif, subtotal, min, max, vlookup, hlookup, use of pivot tables, round, etc. Have a look at this.
Question #13 – Suggest improving the working capital flow of the company
According to my, stock-in-hand can be the key to improving the working capital of the company. Out of all the components of working capitalComponents 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., the stock is controllable by us. We can pressurize our debtorsDebtorsA debtor is a person or entity that owes money to the other party in a transaction. The receiver is referred to as the creditor, and the payment terms vary for each transaction based on the terms and conditions agreed upon by the parties. 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 goodwillGoodwillIn 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. 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 management can go a long way in improving the working capital of the company. Excess stocking should be avoided, and the stock turnover ratio should be high.
This answer is also generic. Some industries work on negative working capitalNegative 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. as well, 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 about the company?
It is very interesting to correlate the cash flow statement and the profit and loss statement of the company. What I am trying to say is, high revenue does not mean that the company has a high availability of cash. At the same, if the company has excess liquid cash, it does not mean that the company has earned a profit.
Cash flowCash 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. 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 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 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., Cash Flow from investing activitiesCash 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. & Cash Flow from financing activities. Operations related to day-to-day operations which help the company earn revenue. Investing activities show the company’s capital expenditureCapital 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.. Financing activitiesFinancing 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. 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 have any direct impact on the income statement. However, year on year, you will charge depreciation as an expense to the income statement.
- 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 instead of a decrease in current assets, there will be an increase in current liabilities.
Also, yearly, when depreciation is charged to the income statementThe 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., the asset will be reduced.
- Cash flow statement – There will be a cash outflow that will be 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 has to coordinate with various teams such as customer supporting, marketing, procurement, treasury, taxation, business development, etc. I would say that the availability of data/details/documents from these teams on a timely basis is a key challenge faced by an accountant. 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, delay in accounting is not appreciated by the management 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 will 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:
- Posting various journal entries in the ERP
- Extracting/maintaining/updating different reports which are required by the management (some of these reports are a list of payable amount for the next three working days, fund position at the end of the day, debtors aging report, etc.)
- Scrutiny and reconciliation of different ledgers
- Checking invoices and other supporting documents required to be part of the invoice
- 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. Let us say you are applying for the position of Accounts ReceivableAccounts ReceivableAccounts receivables refer to the amount due on the customers for the credit sales of the products or services made by the company to them. It appears as a current asset in the corporate balance sheet. 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, then you need to mention purchase orders, materials receipt, and 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 company?
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 the organization, you are not even part of, it can show a lot of arrogance on your part. At the same time, not wanting to change means you can be easily bent, which again not a good trait is 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 revenue model, the processes followed at a broader level, and getting acquainted with the management and the team reporting to me. I believe that before suggesting any changes, knowing these things is very important. Once I spend enough time in the system, I would then be in a position to suggest changes based on industry best practices, responses to the competitors, and shareholderShareholderA 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. expectations.
Question #19 – Tell me something about yourself
This question is not asked by interviewers to know your background. They already have your resume right in front of them, which states the facts about your academic and work experience background. 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. 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 which the interviewer already knows, use this opportunity to tell them things 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 finally 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, which is why the interviewers ask these questions to test your composure under such stressed times. Take care to mention a genuinely stressful situation and do not crib about the work pressure you have faced on a day to day basis 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 that of 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 the steps taken by you 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 best interests of the company in those stressed times.
This article has been a list of Top 20 Accounting Interview Question and Answers. You can also look at these other sets of interview questions for further knowledge –