All The Useful Accounting Interview Questions & Answers - 2

Q 1. What is Accounting & why it is used?
Accounting is the record of the financial transactions along with sorting, retrieving and even confusing and presenting the results in many different reports for businesses & corporations. Accounting helps the firm to analyze the financial performance of the company, and it also helps the industry to have a look at the statistics like net profit.

Accounting is used: 
For keeping a record of the transactions,
For maintaining a track of financial records,
For doing the internal audits,
For reporting and also analyzing the financial information to the management
For advising on the matters of taxation.

Q 2. What are the 5 basic accounting principles?

The five principles of accounting are
Revenue Recognition Principle
Historical Cost Principle
Matching Principle
Full Disclosure Principle
Objectivity Principle

Q 3. What is a business transaction in accounting?
A business transaction is actually an event which directly influences a business financially, or in other words, we can say that it causes a shift in its assets, accountability and /or equity. Any event which does not shift the business financially is not registered in an accounting system. Business transactions are basically recorded in a particular type of register which is called journal

Q 4. Why is accuracy important in accounting?
It helps in preparing the financial statements rapidly and also accurately
It gives information to implement the control of cash in any business.
It highly contributes to assessing the financial condition of the business at any point in time.
It keeps a proper track of the expenditure on staff and also their performance.
It accurately measures the business performance in contrast to the projections in the business strategy.
It quickly highlights those areas where trouble could arise and even it enables cure to put the problem back in place
It completely fulfills the tax obligations.
It assists us in calculating the amount of tax we have to pay.

Q 5. What are a debit note and credit note with an example?

Debit Note: 
A debit note is actually a document which is used by a vendor to communicate to the buyer of the current debt obligations, or it is a document which is made by a buyer when returning the goods which were received on credit. The debit note can give data regarding a future invoice, or it may serve as an indication for funds which are due at present.

Credit Note: 
A credit note is also a document which is sent by a seller to the buyer, or we can say, a vendor to the customer, informing that a credit has been given to their account against the goods which was returned by the buyer.

Example: 
The Company ABC buy goods worth dollars 200,00,0 from the Company DEF. The goods which arrived at Company ABC were damaged, and now Company ABC wants to return the goods to Company B Company ABC will promptly issue a debit note for the Company DEF which has all the appropriate information about the products including the VAT and original purchase amount. When Company DEF gets the debit note, and they review and sanction the request, and then they issue a credit note as evidence that they have given compensation to Company ABC

Q 6. What is the objective of the balance sheet?
It gives information about the current financial condition of the business.
It gives a broad picture of the value of the assets like accounts receivable, inventory and fixed assets, cash balances, etc.
It displays the amount of debt the business owes to all the creditors
It also measures the solvency of any business. The business is regarded as a solvent when the assets exceed the business liabilities.
It also shows whether the business is over-trading or under-trading

Q 7. What is working capital and how is it calculated?
Working capital shows the ability of the company by looking at whether the company can pay its current debt with its current assets or cannot pay. Working capital is an essential check of financial health.

Calculation of Working Capital: 

Current Ratio= Current Assets / Current Liabilities

Q 8. What are the types of working capital?
 

The types of Working Capital are: 
Gross working capital: Gross working capital is the capital which is actually used for each of the current assets. The overall value of the current assets will equal the gross working capital.
Net Working Capital: Networking capital is defined as the surplus of current assets over the current liabilities. Net Working Capital = Total Current Assets - Total Current Liabilities
Permanent Working Capital: Permanent working capital is the amount of working capital which should be in cash or in the current assets for pursuing the activities of the business
Temporary Working Capital: Sometime, it might be possible that a business owner has to pay fixed liabilities, then at that point of time the owner needs working capital which is much more than the permanent working capital, and then this excess amount will be temporary working capital

Q 9. What is the difference between trial balance and general ledger?

trial balance vs general ledger

1.    it records the final entries of the transactions - It checks the mathematical accuracy of the general ledger balances.
2.    This is done accordant to the class of accounts - Classification of accounts is not done
3.    It records the transactions all along the accounting year. - It is finalized on the last day of the accounting year.

This is one of the most asked accounting interview questions

Q 10. What is the difference between deferred revenue and accrued revenue?

deferred revenue vs    accrued revenue

1.    It is used in the situations in which money has been received, but the services and goods have not been supplied -    It is used in the cases in which payment has not been collected, but the services and products have been supplied

2.    Deferred Revenue does not impact the net income or loss    - Accrued Revenue affects the net income or loss because it is recorded in the income statement

Q 11. What is the purpose of a balance sheet?
A balance sheet gives interested parties an idea of the company's financial position, in addition to displaying what the company owns and owes. 

Q 12. What is PPE in accounting?
PPE stands for Property, plant, and equipment. Property, plant, and equipment (PP&E) are basically the long-term fixed assets which are very important to the business operations and not easily liquidates. Property, plant, and equipment are the physical assets, and they can also be touched. The entire value of PP&E can range from very very low to exceedingly high as compared to the total assets.

Q 13. What are the 4 types of PPE?
High Visibility Clothing
Hand Protection
Eye Protection
Foot Protection

Q 14. What are the types of adjustment in accounting?
In the Accounting industry, there are four types of account adjustments.

accrued revenues
accrued expenses
deferred revenues
deferred expenses

Q 15. What do you mean by GAAP in accounting?
GAAP stands for Generally Accepted Accounting Principles. It refers to the typical set of accepted accounting principles, procedures, and standard which organizations and their accountants should follow when their financial statements are compiled. GAAP is actually a combination of authoritative standards which is set by the policy boards and the typically accepted ways of recording and even reporting accounting information.

Q 16. What are the 4 principles of GAAP?
The four principles of GAAP are: Cost, Matching, Disclosure, and Revenue.

The 'cost' principle mention the notion that all the values which are listed and reported are the costs to acquire the asset and not to acquire the fair market value,

The 'matching' principle states that the expenditures in the financial statement need to be matched with the revenue. Accountants have to include the value of the spending in the financial statements when the work product is sold, & not necessarily when the work or an invoice is issued.

The 'disclosure' principle states that information pertinent to form a reasonable judgment on the company's finances have to be included, so long as the amount to get that information is understandable.

The 'revenue' principle affirms that all the revenue need to be reported when is it realized and earned and not necessarily when the real cash is received. This is also called accrual accounting.

Other useful accounting questions that you should know the answers to:

17. What is the revenue recognition principle?
18. How do you maintain accounting accuracy?
19. What is TDS and how it is calculated?
20. How do you prepare a balance sheet from a trial balance?
21. How do you classify errors in accounting?
22. What are the different types of GST?
23. What is tally and its features?
24. What is fair value accounting definition?
25. How is scrap value calculated?
26. What is the marginal cost formula?
27. What is the double entry system explain its rules with examples?
28. What are the advantages & disadvantages of double entry system?
29. What are the types of liabilities accounts?
30. What is the formula for acid test ratio in accounting?
31. What are depreciation and amortization?