Accounting Definitions:-

1- Accounting is consolidating the financial transactions of a company using

a systematic approach. It involves recording, analysing, reporting, and
retrieving financial transactions when required. Accounting is mandatory
for legal reasons, taxes, and to understand business health. Accounting
ensures that every business transaction is accounted for and if you need
to pull out information about any expense you can do so with ease.

2- Accounting is a process of recording business activities in a systematic

manner.
3- Accounting is the system of recording and summarizing business and
financial transactions and analyzing, verifying, and reporting the results.
4- Accounting is the processor keeping the accounting books of the financial
transactions of the company. The accountants summarize the transactions
in the form of journal entries. These entries are used in bookkeeping. The
books of accounts are prepared by the accountants as per the regulation
of the auditors and various regulating bodies.

Key objectives of accounting-

The three key objectives of accounting are as follows.

 Record keeping

The fundamentals of accounting include record keeping which is the primary

function of accounting. A business must use standard forms of storing and
retaining information so it can be retrieved when the need for it arises. Thorough
and accurate storage of records is essential for all transaction-related purposes.
A software package such as TallyPrime can be utilized to store every transaction
that takes place.

 Reporting

Financial reporting is a key accounting objective after record keeping.

Accounting enables businesses to record and report their financial status at the
end of a particular period. It involves putting together transaction details and
reports that are necessary to make sense of a certain aspect of a business
during a specific time period. Financial statements are results of aggregating
financial information of a business and these are useful tools for reporting the
financial parts of a business.

 Analysis

The reports which are based on the business records are analysed in accounting.
When business health needs to be determined then the business reports are
analysed. Analysis in accounting enables accountants to find out ways to
improve business efficiency, upgrade processes, and to see where unnecessary
expenses are being made. Analysis of financial reporting allows your business to
run without problems as it ensures no discrepancies are found.
 Rules of Accounting - (Golden Rules)
 Debit the receiver, credit the giver
 Debit what comes in, credit what goes out
 Debit all expenses and losses, credit all incomes and gains

Double Entry System

There are three different stages of the double-entry system, which are –

 Recording transactions in the accounting systems

 Preparing a trial balance in respective ledger accounts
 Preparing final documents and closing the books of accounts

Dual aspect term

The dual aspect suggests that every business transaction requires double-
entry bookkeeping. This can be understood with the example- If you purchase
anything, you give the cash and receive the stuff, and when you sell
anything, you lose the stuff and earn the money. This defines the aspects of
every transaction.

GAAP
GAAP is the abbreviation for Generally Accepted Accounting Principles (GAAP)
issued by the Institute of Chartered Accountants of India (ICAI) and the
provisions of the Companies Act, 1956. It is a cluster of accounting standards
and common industry usage, and it is used by organizations to:

 Record their financial information properly

 Summarize accounting records into financial statements
 Disclose information whenever required

ICAI

Institute of Chartered Accountants of India.

TYPES OF ACCOUNTING
 - Financial accounting deals with the proper presentation of the
transactions in the form of financial statements such as income
statements which are shared with people outside the business.

- Management accounting is a form of accounting whereby the

management department receives financial information so they can take
vital business decisions to ensure efficient business continuity.
Management accounting is part of the internal process as it is used for
improving the overall business. It includes information such as the budget.

- Administrative Accounting – Administrative accounting is focused

on the administrative aspects of the company and is used above all to
assess the fulfilment of the established objectives and improve the
implemented strategy. It is very useful for making forecasts and
planning the actions and resources to be used.
- Tax Accounting -Tax accounting helps to register and prepare reports
related to tax returns to the public treasury and payment of taxes.
- Cost Accounting – This type of accounting is more focused on
companies of an industrial nature. It helps to make a detailed analysis
of the unit costs of production, sales, and, in general, the production
process that the company carries out.

Features and Advantages:-

1- Acctual picture of business and provide information e.g Liabilities (Compnay has to pay ) &
Assets (Resources of company that will give profit) that help management to take necessary
decisions on time to increase profite and avoice losses. Analysis and Interpretation-
Financial data is analysed and interpreted so that users of financial data may assess the
profitability and financial status of the company. This makes it easier to plan on a sound
basis.

2- Facilitate to comply with legal requirements e.g. , a company can easily do or follow all the
law and rules regulation like Income tax, GST & Company Act (ROC).

3- It helps to minimize disputes related to business if business record all the transactions in
well manner.
4- Identification of Financial Transactions and Events- Accounting simply keeps track of
transactions and events that can be measured in monetary terms. This includes identifying
whether transactions are considered to be part of economic activity or not. Bills and
receipts of transactions are used as evidence to identify such transactions.

How do you maintain accounting accuracy

This is among the most basic accounting questions that employers ask all
levels of candidates. Focus on mentioning the importance of keeping up with
accuracy at all times and the tools you know how to use.
An example of answering a general accounting interview question like this one
is given below.

Maintaining the accuracy of an organization’s accounting is an important

activity as it can result in a huge loss. There are various tools and resources
which can be used to limit the potential for errors to creep in and address
them quickly if any errors do arise. My favourite is MS Excel.

Some of the most common ways of maintaining accuracy in accounting are:

 Identify revenue streams

 Keep a close eye on invoices and receipts
 Prepare tax returns to avoid penalty
 Prepare financial statements
 Keep tabs on deductible expenses

Common mistakes in accounting

This is one of the most frequently asked accounting interview questions.

The most common mistakes in accounting are –

 Mixing personal accounts with that of the company

 Little communication between the company and the accountant
 Not keeping a backup
 Misallocated resources
 Not saving the receipts
 Performing manual accounting
 Not keeping the accounting books up to date

Tally accounting
It is accounting software used by small businesses and shops to manage
routine accounting transactions. It is a popular accounting software created
by Tally Solutions. It is used for all kinds of accounting-related activities
including recording of financial transactions, generating statements of
liabilities and assets, and other analytical purposes.

Basic accounting questions for interview, like this one, are to test your hands-
on knowledge of tools. So craft your answers that show how much you know
about the features.

Steps of the accounting process-

There are 8 steps in the accounting process. This is a framework and it can vary
from company to company as each company has an individual model that it
works with.

 Step 1: Transaction identification

You need to identify your business transactions first. Every unique transaction
needs to be recorded so that it is reflected correctly. All expenses such as costs
to acquire, repair, and upgrade need to be accounted for. Additionally, every sale
record must be stored so it all sales transactions are in one place.

 Step 2: Journal creation

This step involves recording each transaction in a journal. You can choose
between two types of accounting; cash accounting and accrual accounting.
The difference is when the transactions are recorded and stored. Cash
accounting is recorded the moment the cash is paid or received. Accrual
accounting is when transactions are recorded as they occur.

 Step 3: General ledger posting

After the entry in the journal, the transaction details need to be reflected in
the general ledger. The general ledger allows the categorization of transactions
because they are saved according to different accounts. That is, transactions of
the same account are recorded in one place and so on. This allows easy
monitoring according to particular accounts.

 Step 4: Trial balance

In this step, the trial balance is calculated. Ideally, the debits must be equal to
credits for every account. The trial balance throws light on the balances which
have not been adjusted yet in every account. When an unadjusted trial balance
is found, it is analysed in the next step of the accounting cycle

 Step 5: Worksheet analysis

Adjustment of the various transaction entries is done in this step of the

accounting process. First, you need to create a worksheet and make sure that
the credits and debits are equal to each other. In the case of accrual accounting,
there is an additional step here which is to adjust the entries for revenue and
expense matching purposes.

 Step 6: Journal entries adjustment

This is the stage in the accounting cycle where adjustments need to be made.
Once the adjustments have been done, the trial balance is prepared again to
ensure that the debits are equal to the credits. Only then can you move on to the
next step.

 Step 7: Financial statements

This step involves the financial statements that are generated after all the
entries have been adjusted in the journal. In the majority of the cases, the major
financial statements will include the cash flow statement, income statement,
and balance sheet. These uncover the truth behind how the business is doing
financially and how much profits it is earning.

 Step 8: Closing

The last step of the accounting cycle is when the books are closed. This holds for
the temporary accounts as they are shifted to permanent accounts. For example,
the profit and loss statement is transferred to the retained earnings accounts
and so on. The closing occurs at the end of the reporting period. After this, the
cycle starts again.

Key accounting reports

The critical accounting reports are as follows.

 Balance sheet

The balance sheet contains information about the total liabilities, assets, and
stockholder equity. It gives information about the company’s resources and how
these sources are being financed. A balance sheet can help you make better
business decisions. It is a reflection of the company’s financial health, as it
shows what the company owns (assets), what it owes (liabilities), and the
residual interest of the owners (equity).

 Profit and loss statement

The profit and loss statement is also known as P&L and income statement. It
shows the revenues and expenses of a business over a period of time. A business
is going in the right direction when the profits exceed its losses.

 Statement of cash flows

This report summarizes the cash that is received or paid. It doesn’t reflect the
non-cash transactions that take place such as purchases made on the basis of
credit. It contains three parts; investing, operating, and financing. It gives
information about cash generation.

Accounting Standards
 The Institute of Chartered Accountants of India (ICAI) recommends the
Accounting Standards in India. Known as the Indian Accounting Standards or
IND – AS, they come under section 133 of the Companies Act 2013.
Accounting Standards keep getting revised. As of the latest update (February
2022) on the ICAI website, there are 29 of them.

While these are the essentials to mention, here are tips to follow.

 Mention the extent of your familiarity and any specific standards you have
worked with.
 If you have experience with the Accounting Standards, highlight any
specific standards you have worked with and briefly mention your
experience in applying them.
 If you are not familiar with them or are unsure about the number of
standards in India, it is best to admit that and express your willingness to
learn and stay updated on relevant accounting practices.

Sample Answer:

“Yes, I am familiar with the Accounting Standards, which are a set of

principles and guidelines that govern the preparation and presentation of
financial statements. These standards play a crucial role in ensuring
consistency and transparency in financial reporting.

As of my last knowledge update, there are 29 accounting standards in India,

which are issued by the Institute of Chartered Accountants of India (ICAI).
These standards cover various aspects of financial reporting, including
revenue recognition, inventory valuation, fixed assets, and presentation of
financial statements, among others.
In my previous role, I had the opportunity to work with several of these
accounting standards. That was Accounting Standard (AS) 16 – Borrowing
Costs, which include interest and other costs related to borrowing funds

Accounting equation
Assets = Liabilities + Owners Equity.

Examples of fixed assets recored in balance

sheet

examples of fixed assets are automobiles, furniture, office, or any equipment

an organisation requires.
 Examples of liability accounts

Examples Description
Accounts Unpaid debts to suppliers or creditors for goods or services
Payable received.
Accrued Expenses incurred but not yet paid or recorded in the accounting
Expenses books.
Long-term debt securities issued by a company to raise funds from
Bonds Payable
investors.
Customer Advance payments made by customers for goods or services to be
Deposits delivered in the future.
Income Taxes Taxes owed to the government based on the company’s taxable
Payable income.
Installment Long-term loans paid in regular installments over a specified
Loans Payable period.
Interest Payable Unpaid interest on borrowed funds or debts.
Lawsuits
Liabilities arising from pending legal actions or settlements
Payable
Mortgage Loans
Long-term loans secured by real estate property.
Payable
Notes Payable Short-term or long-term written promises to repay borrowed funds.
Wages owed to employees but not yet paid at the end of an
Salaries Payable
accounting period.
Warranty Obligations to cover potential costs of repairs or replacements for
Liability products under warranty.

Difference between ‘Accounts payable (AP)’ and

‘Accounts receivable (AR)
Accounts Payable Accounts Receivable

The amount a company owes because it

The amount a company has the right to collect because it
purchased goods or services on credit
sold goods or services on credit to a customer.
from a vendor or supplier.

Accounts payable are liabilities. Accounts receivable are assets.

Bad debts
A bad debt is a receivable that a customer will not pay. Bad debts are
possible whenever credit is extended to customers. They arise when a
company extends too much credit to a customer that is incapable of paying
back the debt, resulting in either a delayed, reduced, or missing payment
 Depreciation

This is one of the most basic accounting questions for an interview. You can
just mention that depreciation refers to the decreasing value of any asset
that is in use. It is necessary for calculating a business’s net income in every
accounting period.

Bank reconciliation statement

A bank reconciliation statement or BRS is a form that allows individuals to
compare their personal bank account records to that of the bank. BRS is
prepared when the passbook balance differs from the cashbook balance.

Now this is a typical answer. What you should do here is elaborate on it.
Follow these tips before moving on to the sample answer.

 Explain how a bank reconciliation statement helps identify discrepancies

between a company’s accounting records and the bank statement.
 You could further describe the steps involved in preparing a bank
reconciliation statement and the key components included in the
statement.

 Difference between the consignor and
consignee
 This is a very simple accounting interview question. Just mention the
following.
 Consigner – S/he is the shipper of the goods
 Consignee – S/he is the recipient of the goods

Provision and Reserve

According to business experts, it is a good idea to save some part of the profit as reserves
for the unforeseen future, hence companies create a reserve to meet those events.

For such direct accounting interview questions, try to keep your answer to
the point.

Provisions – This refers to keeping the money for a given liability. In short,
EXPENSES.

Examples- provision for doubtful debts, provision for taxation

Reserves – Refers to retaining some amount from the profit for future use. In
short, PROFITS.
Examples-General Reserve.

Difference Between Cost Accounting And Financial

Accounting
Cost Accounting Financial Accounting

Definition

Cost accounting is referred to as a form of managerial Financial accounting is a branch of

accounting that is used by businesses to classify, summarize accounting that is concerned with the
and analyse the different costs with the purpose of cost summarizing, recording and reporting of
control and cost reduction and thereby helping management financial transactions that take place in a
in making better decisions. business concern over a time period.

Type of Information documented

Documents the data associated with the labour and material Documents the data that are in monetary
which are utilised in the manufacturing procedure. terms.

Estimation of Stock

Stock value is estimated at cost Stock value is estimated based on the lesser
value between net realisable value or Cost

Analysis of Profit

Normally, the gains are investigated for a specified job, Profits, Income and expenditure are
batch, product and procedure investigated together for a specific period of
the entire trading concern

Primary Objective

Controlling and reducing cost Towards maintaining the complete record of

the financial transactions

Assets Liabilities

What does it mean?

 Assets are items possessed by a business that will provide it Liabilities are items that
benefits in future. are obligations for a
business

Impact of Depreciation

Assets are depreciable in nature Liabilities are non-

depreciable in nature

Formula used

Assets = Liabilities + Shareholder’s Equity Liabilities = Assets –

Shareholder’s Equity

Impact on cash flow

It is responsible for generation of cash flow for a business It is responsible for

outflow of cash from a
business

Different Types

The different types of assets are tangible, intangible, current and The different types of non-
noncurrent current liabilities are long
term(non-current) and
current liabilities

Examples

Cash, Account Receivable, Goodwill, Investments, Building, etc., Accounts payable,

Interest payable, Deferred
revenue etc.

owner’s equity
The owner’s equity is a business owner’s claim against the assets of the
business. It is also called the capital of the business and is calculated by
subtracting the equity of creditors from the total equity.

Owner’s equity is a critical indicator of the financial health and stability of the
business. It shows the owner’s financial interest in the company and their
stake in the assets. Positive owner’s equity implies that the business has
more assets than liabilities, while negative owner’s equity suggests that the
business owes more to creditors than its total assets.

debit note

A debit note or debit memorandum is a commercial document sent

to a seller, by a buyer, formally requesting a credit note. The
 original document is sent to the party to whom the goods are being
returned and the duplicate copy is kept for office record.

credit note

A credit note is a receipt given to a buyer who has returned a

product, by the seller/shop. This intimation suggests that the
buyer’s account is being credited for the purpose indicated.

Working capital
This is one of the basic accounts questions for interview. You can simply state
its definition or give an example to further elaborate. Working capital is
calculated as current assets minus current liabilities, which is used in day-to-
day trading. In a simple accounting scheme, the concept of working capital
focuses on the capital resources that a given company can count on in the
short term to operate. These resources owned by the company are the cash,
the portfolio of financial products, and other investments made by the
company

Benefits of Accounting Principles

Helps to Plan Ahead

Planning makes it easier for a business to function. Apart from planning the business, it is also important
for the business to implement the pre-planned actions to the business at the right time ad situation to gain
an advantage in the business. Accounting principles provide a real image of how the business is doing. It
shows the accurate revenues earned by the business and predicts the trend of cash flows in the business.
This helps the business to keep a record of its financial statements which prevents it to skip necessary
information.

Maintain Consistency

Accounting principles help businesses follow the same accounting principles for their accounting periods.
This helps in advancing the usage and uniformity of all financial statements. By following the consistency
principle, the enterprises make it easier for the users or other parties to evaluate the efficiency of financial
information offering greater trust for the users to operate with us.

Reduces Risks and Frauds

Accounting Principles help companies reduce the risk of falsification of data and other frauds in the
business. GAAP guidelines guide the investors or stakeholders to follow the reported business finances
effectively. GAAP provides the business with the information required to investigate the breaks in issues of
collection and capabilities of earnings. It also demonstrates the mistakes that are needed to be looked after
for efficient running of the business.

Fixed assets
Fixed assets are properties that are purchased with the goal of earning money over time. These are assets
that will most likely take a lengthy time to convert into cash. Land, buildings, and equipment are examples
of assets. Fixed assets are also known as capital assets. While selling or purchasing fixed assets takes
time, the transactions involving these assets show the inflow and outflow of capital in a business.

Fixed Asset Types

Tangible
Structures, land, hardware, diverse equipment, autos, furniture, and other items are all included.
Consider the tangible resources you’ll require to keep your company afloat. Start with the price
you paid for them or rented them for, and then depreciate their value using the appropriate
depreciation strategies. Long-term assets like land and structures may appreciate rather than
depreciate over time. This element must be accounted for in your balance sheet as well.

Intangible
These can include goodwill, licences, registered or trademarked names, phone numbers, any
invention, and websites if you want to sell them. It’s more difficult to determine the worth of
assets like phone numbers and trademarked or patented items. Goodwill is an elusive resource,
and determining the difference between the organization’s true value and the price at which it is
sold or purchased is a straightforward way to assess it. Intangible assets are notoriously difficult
to value.

What are Fictitious Assets?

Fictitious assets have no physical existence or realisable value, but the company
shows them as a cash expenditure in the books of accounts. They are a part of the
assets column in the financial statements, and they are expenses or losses that do
not get written off during the accounting period of their occurrence.

 Promotional Expenses of a business – Firms see marketing expenditure as an investment in the

company that will fetch returns for more than a year. They are amortized on a systematic basis
over many years to reduce their value periodically.
 Loss on issue of debentures – When a company issues debentures, any loss is treated as a
fictitious asset and amortized in the books of accounts.