• What is accounting

• Accounting is the process of recording financial transactions

pertaining to a business. The accounting process includes
summarizing, analyzing, and reporting these transactions to oversight
agencies, regulators, and tax collection entities.

• Bookkeeping
• Bookkeeping is the process of recording your company's financial
transactions into organized accounts on a daily basis. It can also refer
to the different recording techniques businesses can use.
Bookkeeping is an essential part of your accounting process for a few
reasons.
• What are the different types of accounting?
• Ans. Different types of accounting are –
• Financial Accounting – This branch of accounting records, summarises
and reports the business transactions that take place over a time period
in an organisation. It is required in both the private and public sectors.
• 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, of the production
process that the company carries out.
• Management Accounting – Management accounting has a broader
vision than cost accounting since it records all the economic and
financial information of the company to be able to make short-term and
long-term decisions.
• Basic accounting equation.
• • The basic accounting equation reflects the basic relationship
between assets, liabilities, and equity
• – an entity’s assets are purchased using either debt (liabilities) or
investment (equity)
• • It is the basis of the double-entry book keeping system
• • The basic equation of Assets = Liabilities + Equity can also be
rendered variously as
• Assets – Liabilities = Equity or Assets – Equity = Liabilities
5 Accounts in accounting
• Capital Account
• Liabilities Account
• Asset Account
• Expense Account
• Revenue Account
• Name at least five different types of accounts in double-entry bookkeeping.
• Ans. The five main types of accounts used are:
• Liability Account – When a company owes money to other businesses and will
pay at a later date, it uses a liability account.
• Capital Account – A capital account determines the net worth over a specific
period, commonly during a year. These accounts include the shareholder’s
equity.
• Expense Account – This type of account includes a company’s daily operation
costs. The costs can be for money spent on advertising or other expenses that
are administrative in nature.
• Income Account – This account shows what a company has earned over a
specific period. It records the sources where the money originates from as well
as the revenue gained for the sale of products/services.
• Asset Account – It refers to any cash or goods a company owns.
• Explain real and nominal accounts with examples.
• Ans. A real account is an account of assets and liabilities. E.g. land account,
building account, etc.
• A nominal account is an account of income and expenses. E.g. salary account,
wages account, etc.

• What is double-entry bookkeeping? What are the rules associated with it?
• Ans. Double-entry bookkeeping is an accounting principle where every debit
has a corresponding credit. Thus, the total debit amount is always equal to
the total credit. In this system, when one account is debited then another
account gets credited at the same time.
• Golden rules of accounting
• Debit the receiver, credit the giver
• Debit what comes in, credit what goes out
• Debit all expenses and losses, credit all incomes and gains

Please elaborate, what this statement means – “Debit the Receiver,

Credit the Giver”.
• Ans. This principle is used in the case of personal accounts. If a person
is giving any amount either in cash or by cheque to an organization, it
becomes an inflow and thus that person must be credited in the
books of accounts. Therefore, when an organization received the
money or cheque, it needs to credit the person who is paying and
debit the organization.
 Three financial statements.
• The balance sheet shows a company’s assets, liabilities, and
shareholders’ equity (put another way: what it owns, what it owes,
and its net worth).
• The income statement outlines the company’s revenues, expenses,
and net income.
• The cash flow statement shows cash inflows and outflows from three
areas: operating activities, investing activities, and financing activities.
• If I had only one statement and wanted to review the overall health
of a company, which statement would I use and why?
• What’s important in the answer to this question is not so much which
financial statement an applicant names, but how well they are able to
provide a well-reasoned justification for their choice. Many will likely
name the cash flow statement, noting the maxim, “Cash is king”, and
explaining that the statement of cash flows gives a true picture of
how much cash the company is generating.
• However,others may legitimately point to the balance sheet on the
grounds that assets are the true driver of cash flow, or the income
statement because it shows the earning power and profitability of a
company on a smoothed out accrual basis.
• What is working capital?
• Ans. 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.
What is working capital?
• Working capital is typically defined as current assets minus current liabilities.

• What does having negative working capital mean?

• A good answer to this question will note that it’s important to consider the company’s normal
• working capital cycle in order to determine precisely the significance for a particular business.
• Negative working capital is usually a sign of efficiency in businesses with low inventory and
accounts receivable. However, in other situations, negative working capital may signal a
company is facing financial trouble if it doesn’t have enough cash to pay its current liabilities.
If cash collected from customers is not yet recorded as revenue, what
happens to it?
• The answer is that it usually goes into “Deferred Revenue” on the
balance sheet as a liability if the revenue has not been earned yet.

What’s the difference between deferred revenue and accounts

receivable?
• Deferred revenue represents cash received from customers for
services or goods not yet provided. Accounts receivable represents
cash owed by customers for goods/services already provided.
When do you capitalize rather than expense a purchase?
• If the purchase will be used in the business for more than one year, it
is capitalized and depreciated according to the company’s accounting
policies.
• What Is Goodwill?
• Goodwill is an intangible asset that is associated with the purchase of
one company by another. Specifically, goodwill is the portion of the
purchase price that is higher than the sum of the net fair value of all
of the assets purchased in the acquisition and the liabilities assumed
in the process. The value of a company’s brand name, solid customer
base, good customer relations, good employee relations,
and proprietary technology represent some reasons why goodwill
exists.

Under what circumstances does goodwill increase?

• when a company buys another business for more than the fair value
of its tangible and intangible assets, goodwill is created.
• How do you record PPE and why is this important?
• PP&E is of major importance because it is the main capital asset that
generates revenue, pr ofitability, and cash flow. They will also know
that there are essentially four factors to consider when accounting for
Property, Plant & Equipment (PP&E) on the balance sheet: (I) initial
purchase price, (II) depreciation, (III) additions (capital expenditures),
and (IV) dispositions.
• What does three statements indicate:
• Income statement: growth rates, margins, and profitability.
• Balance sheet: liquidity, capital assets, credit metrics, liquidity ratios,
leverage, return on assets (ROA), and return on equity (ROE).
• Cash flow statement: short-term and long-term cash flow profile, any
need to raise money or return capital to shareholders.
• What is TDS? Where do you show TDS on a balance sheet?
• Ans. TDS (Tax Deducted at Source) is a concept aimed at collecting tax
at every source of income.
• In the Balance Sheet, TDS is always shown in Liability Side, as it is a
liability to the Goverment, the amount we used to collect on behalf of
the Governent in the business process from the others. And it will be
shown in Assets side when the amount has been deducted by others
on this account.
Q11. Is it possible for a company to
show positive cash flows and still
be in grave trouble?
Ans. Yes, if it shows an unsustainable improvement in
working capital and involves a lack of revenue going
forward in the pipeline.
at is the difference between ‘accounts payable (AP)’ and ‘accounts receivable (AR

Accounts Payable Accounts Receivable

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

Accounts payable are Accounts receivable are assets.

liabilities.
• What is GAAP?
• Generally Accepted Accounting Principles (GAAP) is a set of
accounting and financial reporting standards. Unlike IFRS, there is no
universal GAAP standard. It varies from one geographical location or
industry to another. GAAP was adopted by the U.S. Securities and
Exchange Commission (SEC) and its principles are guided through 10
key concepts including:
• Briefly explain about IFRS and why it is necessary for accounting.
• Ans. IFRS stands for International Financial Reporting Standards. So, highlight
your response with how this accounting framework has been issued by the
International Accounting Standards Board to set common global standards.
• Coming to its significance, mention that IFRS makes international capital
transactions convenient through the maintenance of balance sheets and
statements of profits and losses.
• Overall, this framework supplements transparency, efficiency and
accountability. You can further expand on these points through relevant
examples.
• 17 IFRS standards
• Are you familiar with the Accounting Standards? How many accounting
standards are there in India?
• Ans. Accounting standards improve the transparency of financial
reporting in all countries. In the United States, the Generally Accepted
Accounting Principles form the set of accounting standards widely
accepted for preparing financial statements. International companies
follow the International Financial Reporting Standards (IFRS), which are
set by the International Accounting Standards Board and serve as the
guideline for non-U.S. GAAP companies reporting financial statements.
• There are currently 41 Accounting Standards that are usually issued by
the International Accounting Standards Board (IASB).
• If our organization has three bank accounts for processing payments, what is the
minimum number of ledgers it needs?
• Ans.Three ledgers for each account for proper accounting and reconciliation
processes.
• What is deferred tax liability?
• Ans. Deferred tax liability signifies that a company may pay more tax in the future
due to current transactions.
• What is a deferred tax asset and how is the value created?
• Ans. A deferred tax asset is when the tax amount has been paid or has been carried
forward but has still not been recognized in the income statement. The value is
created by taking the difference between the book income and the taxable income.
• What is a bank reconciliation statement?
• Ans. 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.
• What do you mean by the company’s payable cycle?
• Ans. It is the time required by the company to pay all its account
payables.
• What is a perpetual inventory system?
• Ans. Perpetual inventory is a methodology that involves recording the
sale or purchase of inventory immediately using enterprise asset
management software and computerized point-of-sale systems.
• Where should you record a cash discount in a journal entry?
• Ans. A cash discount should be recorded as a reduction of expenses in a
cash account.
• Q What is a compound journal entry?
• Ans. A compound journal entry is just like other accounting entries; the
only difference is that it affects more than two account heads. The
compound journal entry has one debit, more than one credit, or more
than one of both debits and credits.
• QWhat is the dual aspect term?
• Ans. 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.
• Please explain the Revenue Recognition and Matching principles
• This is just another question that an interviewer can use to get a feel
for an applicant’s understanding
• of the basic principles of accounting. The revenue recognition
principle dictates the process and
• timing by which revenue is recorded and recognized as an item i n the
financial statements based
• on certain criteria (e.g., transfer of ownership). The matching
principle dictates that the timing of
• expenses be matched to the period in which they are incurred, as
opposed to when they are actually
• paid.
• Define depreciation.
• Ans. 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.
• Do provide examples to elaborate on this accounting interview
answer.
• What are the different types of depreciation?
• Ans. This is a follow-up to the previous accounting interview question.
Mention the following, common depreciation methods.
• Straight Line Depreciation
• Double Declining Balance
• Units of Production
• Differentiate between Provision and Reserve.
• Ans.
• Provisions – This refers to keeping the money for a given liability. In
short, EXPENSES.
• Reserves – Refers to retaining some amount from the profit for future
use. In short, PROFITS.
• What is reversing journal entries?
• Ans. Reversing entries refer to the journal entries that are made when an accounting period
starts. These entries reverse or cancel the adjusting journal entries that were made at the
end of the previous accounting period.

• Name some intangible assets.

• Ans. Intangible assets include –
• Patents
• Copyrights
• Trademarks
• Brand names
• Domain names

What is Bad debt expense?

• Ans. Bad debt expense is asset accounts receivable of a company and is considered to be
uncollectible accounts expense or doubtful accounts expense.
• What do you mean by Amortization and also mention its journal entry?
• Ans. Amortization is an accounting concept that is used to gradually write off the
cost. Through amortization, over a period of time, one can allocate the cost of
any intangible asset. Also, it can be done to repay any loan principal. However,
those assets which have an indefinite life like Goodwill can not be amortized.
• The concept of amortization in accounting is different from depreciation. The
major point of difference between amortization and depreciation is their usage.
Amortization works for intangible assets whereas depreciation works for tangible
assets. Also, unlike depreciation, amortization has no salvage value. Another key
difference between both is that depreciation can be implemented using both the
straight-line method and accelerated method but amortization is implemented
through the straight-line method.
When do you capitalize rather than expense a purchase?
• Ans. An item’s cost is capitalized if it is expected to be consumed by
the company over a long period. This way their economic value does
not depreciate.

• What is the owner’s equity?

• Ans. 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.
• Explain Contingent Liabilities.
• Ans. Contingent Liabilities are potential obligations that may or may
not become an actual liability. They may or may not be incurred by an
entity, based on the outcome of an uncertain future event, e.g. – If an
ex-employee of an ABC company sues it for gender discrimination for
any particular sum, the company has a contingent liability. In case the
company is found guilty, it will have a liability, and if it is not found
guilty, the company will not have an actual liability.
Name different accounting concepts.
• Ans. The most popular accounting concepts are –
• Accounting Period Concept
• Business Entity Concept
• Cost Concept
• Dual Aspect Concept
• Going Concern Concept
• Matching Concept
• Money Measurement Concept
• Can you name some common errors in accounting?
• Ans. Some common accounting errors are –
• Error of omission
• Error of commission
• Error of original entry
• Error of accounting principle
• Compensating error
• Error of entry reversal
• Error of duplication
• How does OPEX differ from Capital Expenses?
• Ans. OPEX is the abbreviation for operating expenses that refers to
the costs a company incurs on a regular basis. But just don’t limit your
response to this definition. Give numerous examples ranging from
utilities, insurance, licence fees and inventory costs to property taxes.
• Capital Expenses are the other costs associated with a business
investment that promises benefits in the future. Some examples are
real estate, upgrading furniture or exteriors of property for higher
appreciation, etc.
• After a brief explanation of the two, do mention that generally, capital
expenses are higher than operating expenses and how these two are
taxed differently.
• What differentiates contingent liability from bad debts?
Contingent liability is not recorded on a balance sheet. It is simply the
result of a record that may not occur. On the other hand, bad debt is
recorded at the same time when there is a sale.
•
Types of Share Capital
Authorised
Share Capital

Issued Unissued
Capital Capital

Subscribed Unsubscribed
Capital Capital

Called Up Uncalled
Capital Capital

Paid Up Unreserved Reversed

Call In Arrear
Capital Capital Capital
• A capital reserve is defined as the reserve that is
created from the capital profits of the company. On the
other hand, reserve capital is defined as the reserve
that is uncalled, i.e., this capital is called only when the
company is on the verge of liquefying.
• Balloon Loan
• A loan that is structured so that the small business owner makes regular repayments
on a predetermined schedule and one much larger payment, or balloon payment, at
the end. These can be attractive to new businesses because the payments are smaller
at the outset when the business is more likely to be facing strict financial constraints.
However, be sure that your business will be capable of making that last balloon
payment since it will be a large one.
• Collateral
• Any asset that you pledge as security for a loan instrument is called collateral. Lenders
often require collateral as a way to make sure they won’t lose money if your business
defaults on the loan. When you pledge an asset for collateral, it becomes subject to
seizure by the lender if you fail to meet the requirements of the loan documents.