Top 50 Accounting Interview Questions and Answers

Accounting is one of the crucial functions of running a business successfully, as it ensures the management of financial stability and compliance with regulations. As the accounting scope is open-ended, candidates need to be aware of accounting interview questions beforehand to avoid major hassle during their accounting job interview. Understanding the commonly asked accounting interview questions can increase the chances of securing a position in a reputed accounting firm.

Candidates have a wide range of accounting job opportunities across various industries, from small bookkeeping firms to multinational corporations. Before going for your accounting interview, check this guide of the top 50 accounting interview questions and answers from beginner to advanced level.
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Accounting Overview

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Top 50 Accounting Interview Questions and Answers

Accounting Interview Questions for Beginners

1. What is accounting?
   Answer: Accounting is the process of recording, summarising, analysing, and reporting financial transactions to provide insights into a company's financial health.

2. What are the different types of accounting?
   Answer: The main types of accounting are financial accounting, managerial accounting, tax accounting, and auditing.

3. What is double-entry bookkeeping?
   Answer: Double-entry bookkeeping is an accounting system where each transaction affects at least two accounts, ensuring the accounting equation remains balanced.

4. What is the accounting equation?
   Answer: The accounting equation is: Assets = Liabilities + Equity.

5. What are financial statements?
   Answer: Financial statements include the balance sheet, income statement, and cash flow statement, which provide insights into a company's financial health.

6. What is depreciation?
   Answer: Depreciation is the process of allocating the cost of a tangible asset over its useful life.

7. What are the types of depreciation?
   Answer: The main types are straight-line depreciation and declining balance depreciation.

8. What is working capital?
   Answer: Working capital is the difference between current assets and current liabilities.

9. What is Accrual Accounting?
   Answer: Accrual accounting recognises revenues and expenses when they are incurred, rather than when cash is received or paid.

10. What is Cash Accounting?
    Answer: Cash accounting recognises transactions only when cash is received or paid.

11. What is Financial Accounting?
    Answer: Financial accounting focuses on producing financial statements that report an organisation's financial position, performance, and cash flow. These statements are used by external stakeholders to make decisions about investing in or lending money.

12. What is Managerial Accounting?
    Answer: Managerial accounting provides information that internal managers need to make decisions about running the organisation. This includes information on costs, pricing, and production efficiency.

13. What is Tax Accounting?
    Answer: Tax accounting deals with the preparation of tax returns and planning for tax payments. It is important to ensure that all taxes owed are paid on time and that no penalties are incurred.

14. What is Auditing?
    Answer: Auditing is the process of independently verifying the accuracy of an organisation's financial statements and other information. This is done to protect the interests of investors and creditors.

15. What are the basic accounting principles?
    Answer: The basic accounting principles are Accrual principle, Conservatism principle, Consistency principle, Cost principle, Economic entity principle, Full disclosure principle, Going concern principle, Matching principle, Materiality principle, Monetary unit principle, Reliability principle, Revenue recognition principle, and Time period principle.

16. What is the difference between accounts payable and accounts receivable?\
    Answer: Accounts Payable represents the money a company owes to its suppliers, vendors, or creditors for goods or services received but not yet paid for. Accounts payable is a liability on the company's balance sheet because the company must settle these debts in the future, whereas the Accounts Receivable represents the money that is owed to a company by its customers or clients for goods or services provided on credit. AR is considered an asset on the company's balance sheet because it represents the right to receive cash in the future.

17. What is the difference between gross profit and net profit?
    Answer: Gross profit is the revenue a company generates from its core business activities minus the direct costs associated with producing or delivering its goods or services, whereas the Net profit represents the final profit a company earns after deducting all operating expenses, interest, taxes, and other non-operating costs from its gross profit.

18. What is a cash flow statement?
    Answer: A cash flow statement refers to a comprehensive overview of a company's cash inflows and outflows over a specified period, typically a fiscal year or a quarter.

19. What is a ledger?
    Answer: A ledger is a fundamental accounting tool that serves as a systematic and organised record-keeping system for financial transactions within a business or organisation. It acts as a central repository for all financial data, helping to track, monitor, and manage the flow of money in and out of an entity.

20. What is the purpose of a balance sheet?
    Answer: A balance sheet is a fundamental financial statement that provides a snapshot of a company's financial position at a specific point in time, typically at the end of an accounting period, such as a quarter or a year.

21. What is GAAP?
    Answer: GAAP stands for Generally Accepted Accounting Principles, is a set of standardised guidelines, principles, and procedures used in the field of accounting and financial reporting.

22. Why is GAAP established?
    Answer: GAAP principles are established to ensure consistency, accuracy, and transparency in the way companies prepare and present their financial statements.

23. What is IFRS?
    Answer: Established by International Accounting Standards Board (IASB),IFRS stands for International Financial Reporting Standards, which is a set of accounting principles and standards used by companies and organisations around the world to prepare and present their financial statements.

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Accounting Interview Questions for Intermediate Level

24. What is goodwill in accounting?
    Answer: Goodwill is an intangible asset that arises when a company acquires another business for more than its net asset value.

25. What is a trial balance?
    Answer: A trial balance is a statement that lists all ledger accounts and their balances to ensure total debits equal total credits.

26. What are contingent liabilities?
    Answer: Contingent liabilities are potential liabilities that depend on the outcome of a future event, such as lawsuits or warranties.

27. What is the difference between direct and indirect expenses?
    Answer: Direct expenses are directly linked to production, such as raw material costs, whereas indirect expenses include administrative costs.

28. What is EBITDA?
    Answer: EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. It is a measure of a company's operating performance.

29. What is EBITDA used for?
    Answer: EBITDA is a financial metric widely used in the business world to evaluate the operating performance and profitability of a company.

30. What is the cost of goods sold (COGS)?
    Answer: COGS represents the direct costs associated with producing goods or services sold by a company. It is a key expense on the income statement. The cost of goods sold (COGS) is a fundamental accounting concept that represents the direct expenses a company incurs in the production or acquisition of the goods it sells during a specific period, typically a fiscal quarter or year.

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31. What is an audit trail?
    Answer: An audit trail is a comprehensive record-keeping mechanism used in various fields, especially in the realms of finance, information technology, compliance, and security. It is designed to track and document a sequence of events or activities over a specific period, providing a detailed and chronological history of transactions, changes, or interactions within an organisation or system.

32. What is financial leverage?
    Answer: Financial leverage refers to the strategy of using borrowed capital, typically in the form of debt or loans, to increase the potential returns on an investment or business operation.

33. What is a financial ratio?
    Answer: A financial ratio is a quantitative metric that provides insight into the financial health and performance of a business or an individual.

34. What is an audit opinion?
    Answer: An audit opinion is a formal statement provided by an independent auditor or auditing firm after an audit engagement, which reflects their professional assessment of the accuracy, reliability, and fairness of a company's financial statements.

35. What is the difference between a journal and a ledger?
    Answer: In accounting, a journal is regarded as the chronological record of all business transactions, which acts as the initial entry point and whilst a ledger is the summarised record where business transactions from the journal are categorized and sorted according to specific accounts to show in detail each account's balance over time.

36. What is tax planning?
    Answer: Tax planning refers to the analysis of a financial situation or plan to ensure that all elements work together to allow you to pay the lowest taxes possible.

37. If I had only one statement and wanted to review the overall health of a company, which statement would I use and why?
    Answer: The cash flow statement would be the best answer. It gives a true picture of how much cash a company is generating.

38. If cash collected from customers is not yet recorded as revenue, what happens to it?
    Answer: If cash collected from customers is not recorded as revenue, it is referred to as ‘Deferred Revenue’ which is a liability of the business.

39. Under what circumstances does goodwill increase or decrease?
    Answer: Goodwill is established when a company pays more than the fair value of another company's net assets, or equity. As such, if goodwill increased, it was because the company bought another business.

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Accounting Interview Questions for Professional Level

40. What does having negative working capital mean?
    Answer: Negative working capital is a sign of efficiency in businesses with low inventory and accounts receivable, such as grocery retail and restaurant business. In other industries, negative working capital may signal a company is facing financial trouble.

41. What is hedge accounting?
    Answer: Hedge accounting aligns the recognition of gains and losses on hedging instruments with the risks they mitigate.

42. What is forensic accounting?
    Answer: Forensic accounting involves investigating financial records for fraud, embezzlement, or financial disputes.

43. What is the importance of financial ratios?
    Answer: Financial ratios help assess a company’s profitability, liquidity, efficiency, and financial health.

44. What is the FIFO method?
    Answer: The FIFO (First-In, First-Out) method is a widely used inventory accounting and cost allocation technique employed by businesses to manage their inventory and determine the cost of goods sold (COGS). Under the FIFO method, the basic principle is to assume that the first items added to an inventory are the first ones to be sold.

45. What is the LIFO method?
    Answer: LIFO, or Last-In-First-Out, is another inventory valuation method that assumes the newest inventory is sold first. It can affect taxes and financial statements.

46. What is a balance sheet reconciliation?
    Answer: A balance sheet reconciliation is a crucial financial accounting process that ensures the accuracy and integrity of a company's financial statements, specifically the balance sheet.

47. What is a 401(k) plan?
    Answer: A 401(k) plan is a tax-advantaged retirement savings and investment account that is widely used in the United States. It gets its name from Section 401(k) of the Internal Revenue Code, which governs these plans.

48. What is the Sarbanes-Oxley Act (SOX)?
    Answer: The Sarbanes-Oxley Act (SOX), officially known as the Public Company Accounting Reform and Investor Protection Act of 2002, is a significant piece of legislation enacted in the United States in response to a series of high-profile corporate accounting scandals in the early 2000s, most notably the Enron and WorldCom scandals.

49. What is a variance analysis?
    Answer: Variance analysis is a powerful financial and management accounting technique used by organisations to assess and understand the differences between expected and actual financial or operational performance.

50. How do you record PP&E and why is this important?
    Answer: There are essentially four areas to consider when accounting for PP&E on the balance sheet: 1) the initial purchase, 2) depreciation, 3) additions (capital expenditures) and 4) dispositions.

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Accountancy Scope

Those who are appearing for an accountancy interview must know that there is ample career opportunity in the field of accounting. The accountancy scope has been expanded due to the rise in e-business and to have seamless financial management of the organisation. Professional certifications like CPA, CMA, and ACCA enhance career prospects and significantly impact accounting salary trends. To know more about the accounting scope, check the table below.

Accountancy Scope: Top Job Profiles, Salary Trends, and Top Recruiters

(Source: Ambitionbox, Pyscale)

Accounting and Taxation Certification Courses By Top Providers

Conclusion

The field of accounting offers a diverse range of career opportunities across various industries. Preparing for an accounting job interview requires a deep understanding of accounting concepts, tax laws, auditing procedures, and compliance regulations. Whether aiming for a CPA salary or building expertise in financial accounting, the right preparation ensures success in this ever-evolving field.