Getting away with this competitive environment nowadays is not an easy cup of tea. Accounting is the most likely and most respectable job in the whole entire world. Therefore, These are some of the accounting interview questions and answers that will help you to clear the accounts and finance interview.
Accounting Interview questions and answers
What do you know about the income statement?
The income statement is a summary of the profitability of the firm over a period of time, such as a year. Moreover, It presents revenues generated during the operating period, and expenses incurred the same period, and the company’s net incomes, which are simply the difference between revenues and expenses.
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It is important to distinguish four broad classes of expenses: cost of goods sold, which is the direct cost attributable to producing the product sold by the firm; general and administrative expenses, which correspond to overhead expenses, salaries, advertising, and other costs of operating the firm that is not directly attributable to production; interest expense on the firm’s debt; and taxes on earnings owned to the governments.
What is cash flows?
A cash flow statement concentrates on transactions that have a direct impact on cash. Similarly, It deals with the inflows and outflows of cash indicating the exact amount and timing of flows between two balance sheets dates. Above all, It explains the changes in cash position between the two periods. Cash flow means inflow and outflow of cash during the accounting period. But, From the beginning of the year until the end of the year, cash is received from various sources and spent on various heading. Incoming and outgoing cash is termed as cash flow.
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The term cash here stands for cash and bank balance. Moreover, When the management is interested to know about the movement of cash and the availability of cash, the cash flow analysis provides this information. Similarly, The cash flow statement is a statement of recording systematically all inflows and outflows of cash during the accounting periods. Thus it shows the sources of cash inflows and cash outflows of a firm for a particular period.
What are the types of financial ratios?
Various types of ratios are available to evaluate the firm’s strength and weaknesses. Financial ratios may be grouped into the following five types as follows:
1. Liquidity ratios
2. Assets management or efficient ratios
3. Debt management ratio or leverage ratios
4. Profitability ratios
5. Market value ratios
Significance/importance of time value of money – Accounting interview questions and answers
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Time value of money concept is important for these reasons:
- Valuation of securities and other assets: The value of any assets is the present value of the expected future cash flows (interest and dividend). For investors as well as financial managers, it is useful to make the valuation of the assets.
- Capital budgeting (the analysis of investment projects): Capital budgeting is the process of evaluating and selecting the investment project. Similarly, For the investment decision, the time value of money is very important to convert future cash flows in the present value term.
- The cost of capital: The Company needs the capital for long-term investments. For this purpose, it is necessary to calculate the cost of capital of long-term investments. Likewise, For the calculation of the cost of the capital time value of money, the concept is important.
- Working capital (Short-term asset and liability) management: All firm needs working capital for daily operations. Further, To manage the working capital of the firm, the time value of money is important.
- Lease analysis: Company needs fixed assets to generate sales. The company can purchase or lease fixed assets. Meanwhile, For this analysis of lease versus purchase decision, the time value of money is important.
- The trade-off between risk and return: A firm invests in the project for the positive return. But this return should be balanced with the risk. However, one cannot maintain a balance between risk and return without using the except for the time value of money.
interview questions and answers on accounting
What is an annuity and explain the types of annuity? – Accounting interview questions and answers
An annuity is a special cash flow pattern in which, as its name implies, a constant annual amount is to be paid or received over a defined number of periods. An annuity is two types: ordinary annuity and annuity due.
- Ordinary annuity
In an ordinary annuity, it is assumed that the cash flows occur at the end of the period. An ordinary annuity is also known as a deferred annuity. For example, a person promises to pay Rs 5,000 at the end of 3 years for the loan, then it is an ordinary annuity.
- Annuity due
An annuity due is one in which cash flows occur at the beginning of each period. Ordinary annuities are much more common than annuities due and from now on, unless otherwise stated, we will assume we are dealing with ordinary annuities.
For example, if a person pays Rs 5,000 at the beginning of each of 3 years instead of the end of each of 3 years, then it is an annuity due. The interest rate on load assumed to be 10 percent annually.
- Future value of an ordinary annuity
The future value of an annuity (FVAn) is the total sum of the annuity will be worth at the end of the annuity term, when a constant annual amount is invested each period and retained until the end of the annuity term.
- Future value of annuity due
If the payments or receipts are made at the beginning of the years, it is called an annuity due. In this case, one compounding period is more than an ordinary annuity. So the value of annuity due is relatively higher than the value of the ordinary annuity. This is the most important questions based on interview questions and answers on accounting.
accounting interview questions answers
What is the Nominal and Real Rate of Return
The real interest rate is the purchasing power return to the lender of funds. It is the rate of return from a financial asset expressed in terms of its purchasing power (adjusted for inflation). Certainly, The inflation premium is the expected rate of inflation that, when added to the real interest rate, equals the nominal interest rate on a loan.
Above all, If the lender expects prices to rise during the life of a loan, s/he will have to adjust the nominal rate of interest to keep pace with inflation so that the lender’s purchasing power is protected. Therefore, inflation tends to drive up interest rates.
Conditions for using the cost of capital – Accounting interview questions and answers
There are two basic conditions that should be classified for using the weighted average cost of capital for evaluating new investments.
- The new investments being considered to have the same risk as to the average risk of existing investments. In other words, the adoption of new investments will not change the risk complexion of the firm.
- The company’s cost of capital should be used to evaluate only investments of the same risk as the average investment made in the past; that is, the new investments must no change the business risk of the firm if they are undertaken.
- The financing policy of the firm is not affected by the investments that are made. To Clarify, The amounts of the different types of securities used by the firm should not change as a result of undertaking any of the new investments being evaluated; that is, the financing of the new investments must not change the financial risks of the firm.
Thus, the cost of capital is the right discount rate for a project that is a carbon copy of the firm’s existing business. However, in practice, the cost of capital is used as a benchmark hurdle rate that is adjusted for variations in risk and financing patterns.
accounting interview questions with answers
What are current assets?
Answer: Current assets are relatively viewed as a liquid which means they can generate cash in a relatively short period of time. Moreover, some of the instances for current assets are cash and marketable securities, sundry debtors, bills receivables, and stocks (inventory).
What are current liabilities?
Answer: Current liabilities are debts that will come due within a year. In addition, The major current liabilities are bank overdraft, sundry creditors, bills payable, and outstanding expenses.
What is current ratio?
Answer: The current ratio measures the extent to which the claims of short term creditors are covered by short term assets. This ratio is calculated by dividing current assets by current liabilities. Consequently, The current ratio measures the ability of the firm to meet the obligations due within one year. In conclusion, this assumes that accounts receivables and stocks can be converted into cash.
Current ratio=Current assets / Current liabilities
What happens if the current ratio is low?
Answer: If the current ratio is too low, the form may have difficulty in meeting the short term commitments as they mature.
Senior accountant interview questions
What happens if the current ratio is high?
Answer: If the current ratio is too high, the firm may have an excessive investment or be underutilizing short term credit.
What is quick ratio?
Answer: The purpose of this ratio is to test the ability of the firm for the immediate payment of current liabilities. However, This ratio is calculated by deducting stocks from current assets and dividing the remainder by current liabilities. Moreover, Stocks are excluded because it may be difficult to liquidate them at their full book value,
This is the important accounting interview questions and answers.
Quick ratio: current assets-stocks/current liabilities.
How the compound interest differs from the simple interest?
Answer: If interest for one period is added to the principal to get the principal for the next period it is called compound interest. Further, Compounding interest means earning interest on interest so we call the result compound interest. With simple interest, the interest is not reinvested so interest is earned each period only on the original principal. Therefore, The time period for compounding the interest may be annual, semi-annual, or any other regular period of time.
What is working capital?
Answer: The difference between the company’s current assets and the current liabilities is referred to as the networking capital. In other words, working capital is defined as the excess of current assets over the current liabilities. Above all, This view can be elaborated as the excess of current assets of a business over the current items to employees and outsiders.
accounting interview questions with answers
This questions will be asked as the accounting interview questions and answers.
What is operating cycle?
Answer: The operating cycle is the time between when the firm receives the inventory from suppliers and when it collects cash from customers. Therefore, the operating cycle is the sum of the inventory conversion period and the receivables collection period. Therefore, The operating cycle can be separated into two-time segments and expressed as follows;
Operating Cycle = Inventory Period + Accounts Receivable Period.
where the cost of goods sold is sales minus gross profit and inventory turnover specifies the number of times on which inventory of the company turned over during a year. To clarify, Higher the inventory turnover lower will be the length of the inventory conversion period. Therefore, The shorter inventory conversion period is preferable. Moreover, Inventory turnover ratio can be computed by using one of the following formulas;
Inventory turnover= cost of goods sold / inventories
Inventory turnover = sales / inventory
What is the Receivables Conversion Period ( RCP )?
Answer: The receivable conversion period is the length of time between the sale of finished goods and the conversion of receivables into cash. Moreover, The receivable conversion period is also known as receivable collection period or average collection period or days sales outstanding ( DSO ) or receivable period or debtor collection period. So, the length of the receivable collection period depends on the credit policy of the firm. The average collection period is computed by using the following equation:
Receivable Collection Period = Receivables / ( Credit Sales / 360 )
or Average accounts receivables = Average account receivables / ( credit sales / 360)
or Receivable Turnover = Credit Sales / Receivables.
What is the Inventory Conversion Period(ICP) and how it is calculated? (Accounting interview questions and answers)
Answer: The inventory conversion period is the length of time between the purchase of raw materials and the conversion of raw materials into finished goods. Furthermore, The inventory conversion period is also known as inventory period or stock conversion period and is computed by using the following equation:
Inventory conversion period = inventory / ( cost of goods sold / 360 )
or, Average inventory / ( cost of goods sold / 360 )
Inventory conversion period = Days in a year / Inventory Turnover.
Analyze this question;
- What does it mean that ABC company has a current ratio of 1.44?
The current ratio of 1.44 means ABC company had rs. 1.44 in current assets for each 1 of current liabilities.
2. What does it mean that ABC company has a quick ratio of 1.44?
Quick Ratio of 0.60 indicates that for every rs. 1 that the firm had to pay within the year, there was 0.60 in the firm of quick assets.
Interview questions for bookkeeper
What are the differences between bookkeeping and an accountant?
Answer: Bookkeeping is such a process to organize and enter the transaction of the business that includes sales, purchase, and organizing the receivables and payables. Where an accountant is an individual who looks after all the entries made by the bookkeeper and reviews it. Most importantly, After reviewing the transaction he passes the adjustment entries that are required in the books of accounts before preparing the financial statements. Certainly, The job of the bookkeeper is basically the clerical job and the job of the accountant is the comparatively higher-level job as compared to the bookkeeping.
Where do you see yourself in the next 5 years?
Answer: See this question is not easy. This is a tricky question. In this question, the Human resource manager or the interviewer wants to see how ambitious you are and what you want in your life. Moreover, How seriously you take your career. So you must answer this question in a very polite way and say. Therefore, I want to see my self as a senior accountant or a successful accounts manager. In other words, This answer will show you want to excel in one field and achieve something. Therefore, While answering you don’t need to be over-ambitious as well. Above all, As after your selection if you will not be able to prove yourself then it would be a tough thing for you. So keep it as simple as effective.
What is trial balance? (Accounting interview questions and answers)
Answer: Trial balance is the list of all the ledgers in the correct form free from any kind of materials misstatements that keeps both debits and credits side equal in all the manner. Moreover, If the trial balance of any company is not equal then it will be very tough for the company to prepare its financial statements. Similarly, If the debit and credit side if the trial balance is not equal then the balance sheets assets and liabilities side will not be equal and even we will not be able to know the exact cash flows. Therefore, the trial balances must be made equal in all aspects.
There are three types of trial balance:
- Unadjusted Trial balance: The trial balance that is prepared before making any adjustment in the trial balance is known as an UnAdjusted trial balance.
- Adjusted Trial balance: The trial balance which is prepared after making all the adjustment in the trial balances in known an unadjusted trial balance.
- Post-closing Trial balance: The trial balance is prepared after making the closing entries that contain all the list of the general ledger. similarly, The list of general ledger includes the zero balance of the list of ledgers as well.
What is a double-entry bookkeeping system?
Answer: By its name, the double-entry bookkeeping system means that one entry must be recorded in at least two accounts. In other words, the one entry is set off with the other entry and the effect is zero. Similarly, the debits must be equal to the credit side. Debit=Credit. Moreover, we can explain the double-entry bookkeeping system in such a way that one entry in certainly nullified by the other entry.
Double entry bookkeeping system can be explained in the following;
For example, if BCD company purchases a radio form ABC company and later BCD company pays ABC company through cheque?
Entry in the books of bcd company will be
- for purchase of radio(first phase of the question)
Purcahse a/c dr.
To abc a/c
In this entry, we pass the entry for the purchase of radio from ABC company. the credit balance outstanding will be paid to ABC company.
- For the payment made by BCD company to Abc company through cheque(second phase of the question)
Abc a/c dr.
to bank a/c
Here the outstanding balance of Abc is payment and the ultimate effect is zero. This is called the double-entry bookkeeping system.
Calculate the earning after taxes from the following data: (Accounting interview questions and answers)
|Tax @ 20%|
Solution: Calculation of earning after taxes
Particulars Amount Sales 100,000.00 Less: Variable Cost (10,000.00) Contribution 90,000.00 Less: Fixed cost 20,000.00 Earnings before interest and tax 70,000.00 Less: Interest 10,000.00 Earnings before tax 60,000.00 Less: Tax @ 20% 12,000.00 Earning after tax 48,000.00
That’s all in this blog, I hope you liked it. It will certainly be very helpful in your interviews. Apart from the above, I have also made some additional questions you can click can see these as well.
Do you have any concept of time value of money?
Time value of money is one of the most important concepts in finance. It means that the value of a rupee received one year from now is not the same as the value of a rupee received today. In other words, most of us would prefer to receive cash sooner rather than later, and to spend cash later rather than sooner, because intuitively we know that money has a time value.
Here are the best accounting interview questions and answers.
The time value of money can be clearly defined as the relationship between time and value of money. It can be explained through an example. You have the choice of receiving Rs 200 either now or one year later, your choice would obviously go for the first alternative because you can deposit it in your bank account and earn interest. If suppose the interest rate of the bank is 10 percent, one year later, the amount will be Rs 220 in your bank account due to interest. Therefore, the current amount is more worth than the future amount.
In conclusion, I would like to point out that these questions you will need to revise at least twice before you go for your interview. This will surely pave your path to success. Furthermore, Entry Level Accounting Interview Questions
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