Accounting Interview Questions

Accounting Interview Questions are the different types of frequently asked questions related to the concept of accounting, which one must know to understand the different aspects of accounting.

Accounting is such a vast topic that so many technical questions can be asked. Still, each question can be answered in many different ways. In this article, we have put together a list of the top 20 accounting interview questions and answers so that you can give your best shot in the accounting job interview. If you are new to accounting, you can also look at this basic accounting course.

Question #1- What are the pre-requisites of revenue recognition?

Revenue can be recognized when the following criteria are fulfilled:

• There is an arrangement with the buyer indicating that the sale is supposed to occur. This arrangement can be in the form of a legal agreement, a purchase order, or an email confirming that the buyer is placing an order.
• The delivery of services or products is completed. Revenue cannot be recognized for not delivering goods or services.
• The price of the services or products can be determined with certainty. The arrangement mentioned in point (a) will generally specify the cost of the products/services. If not, then the market price can be used as well.
• Revenue collection can be reasonably determined. For clients with whom the business has been done in the past, data analysis of previous receivables can be used to determine the timely receivable of collections. Credit ratings, market reputation, and references can be checked for new clients to determine the probability of collection.

Delivery of product can be determined easily with the help of the Goods / Material Receipt Note or the Lorry Receipt. But in the case of delivery of services, this seems to be a bit tricky because there might not be a physical transfer of property/goods in this case. So to ensure services have been delivered, timesheets of people who have worked on the project, the final design, or such deliverables can be used as a reference.

Question #2 - How important is documentation when it comes to accounting?

I believe that the accounting team of any company is responsible for presenting an accurate and fair view to the shareholders and the management of the company. The accounting team is like the watchdog of the organization. This is why documentation becomes very important in accounting. Appropriate documentation needs to be checked and maintained so that a proper audit trail is maintained and justified as and when required.

If you can prepare a list of all critical/vital documents for the sector you are going to an accounting interview, it will help you win very good brownie points with the interviewer.

Question #3 - What are Accounting Standards?

Some standards need to be followed by all businesses while maintaining their books of accounts. It makes the financial statement meaningful, comparable, and statutorily compliant. These are more like a set of rules to be followed so that financial statements of different organizations are made on the same lines. So the users of the financial statements know the assumptions behind the financial statements and can easily compare the financial statements across companies and sectors.

Generally Accepted Accounting Principles

Question #4- What is a FIXED ASSET register?

A fixed asset register is a document/register which maintains a list of all fixed assets available with the organization. It is maintained historically, and it also contains data on assets that are sold/written off. Some of the critical details to be mentioned in the FAR are the date of acquisition of an asset, cost of acquisition, rate of depreciation, accumulated depreciation to date, depreciation for the current period, selling price of the asset, if any, date of transfer, location of the asset (in case of multiple business locations, this field is essential), asset number (a unique asset number should be assigned to every asset for ease of tracking. This is especially helpful for assets where quantity is more than one like laptops).

A summarized form of a Fixed Asset Register which will form a part of the Financial Statements, is as follows:

Physical verification of fixed assets should be done regularly, and comments from these verifications should be updated accordingly. There are times when the asset is recorded in the books, but there is no such asset physically.

Question #5- Which accounting software / ERP, according to you, should be used for maintaining the Accounts of an MNC?

Accounting software sets the foundation of accounting in any organization, and it is crucial to choose software that suits the organization's needs.

SAP is not just accounting software, it is more of an ERP, and I would recommend it to the management if I were appointed as the CFO of a 100 million dollar MNC. It has adequate controls, multiple modules with access limitations, various reports can be extracted, and customization is also possible.

However, the cost of SAP is on the higher side. It is the trade-off between risk and returns, which justifies the high cost of the ERP given the volume and scale of the business.

It is important to make yourself clear about the organization's size and then correlate the usage of the ERP with the size. This is required because if you are interviewing for a start-up where survival is the focus rather than the effectiveness of controls, they will prefer Tally, which will be very cost-efficient.

Question #6 - What is the significance of reconciliation in accounting?

Reconciliation is a must when it comes to accounting. One set of records should be matched/reconciled with another so that records are updated quickly. It also helps verify if any incorrect entry/amount is posted in the books. Some essential types of reconciliations are bank reconciliations (bank ledger in our books vis-a-vis bank statement), vendor reconciliation (vendor ledger in our books vis-a-vis our ledger in vendor's books), and intercompany reconciliations, etc. In addition, internal reconciliations should also be done. These include quantity reconciliation of closing stock, cost of goods sold, reconciliations, etc.

The frequency of these statements should be monthly/quarterly / annually, depending on the volume of transactions associated with each one of these. For details, have a look at the Reconciliation of Books.

Question #7 - Explain the procurement process in brief

The procurement process starts with a purchase requisition or a purchase request from a particular department. It is then verified and approved by the HOD. Next, a purchase order is created for purchased items based on the purchase requisition. At this step, the F&A team's responsibility is to check the rates, delivery milestones, place of delivery, payment terms of the vendor, contractual obligations, etc., and then issue a purchase order to the vendor. Finally, the vendor will give their acceptance of the purchase order.

Goods will be delivered at the warehouse/place of delivery, and a material receipt note will be created. Purchase can thus be accounted for in the books if everything is in line with the PO or contract. Payment will then be released as per the payment terms.

Some of the key documents which should be thoroughly verified during the accounting process are:

1. Purchase Requisition
2. Purchase Order (and Contract where there is a pre-existing contract with the vendor)
3. Vendor Invoice
4. Material Receipt Note
5. Delivery Challan
6. Documentation for evaluation of rates at which product is procured
7. Tax-related documentation, if any.

Question #8 - What, according to you, is the importance of budget in any organization?

The budget sets the tone for the organization, i.e., what is the approach to the management for the coming year? Is the management planning to be aggressive with its sales targets or planning to cut down costs, or wants to maintain a steady pace just like last year? It is also very important to check expenses and create a culture where employees start taking responsibility. Employees tend to be careful with their approach as they know that all current year numbers will be tracked and then compared to the budgets allotted to them and their team.

Organizations generally prepare the Profit & Loss budget as this is what management wants to track. But a working capital budget is also equally important as it helps to arrange funds on a timely basis. Based on the P&L budget and the working capital budget, a Budgeted Balance Sheet can also be prepared. Also, look at What is Budgeting?

Question #9 - What are the expense provisions? Is it important to book these provisions?

Very put, provision is an amount of profit put aside on the books to cover an expected / potential expense in the foreseeable future. In day-to-day accounting, there is a high chance that expenses already incurred in the given period may not be booked. The reasons for this could vary, e.g., the vendor is yet to raise an invoice, or let's say that the invoice is raised once in 6 months only, and at the year-end, we have already availed services of 3 months. A provision should be created in the books for these expenses, which we have already availed. Expenses incurred in a given financial year should be booked in the same year to maintain the true and fair view of the financial statements. But it can't book expenses for any reason; then, the provision is the next best thing to do.

Accountants are prudent, and thus the effect of losses/expenses is taken into the books even if there is a potential expense. Still, on the other hand, potential revenue is not taken into the books. Keep this in mind because there is a trick question about the provision of income that you expect to incur in the future.

Question #10 - Explain the difference between working capital and available cash/bank balance.

Working capital is the day-to-day funds requirement for any business. Cash and bank balance are a part of any organization's total working capital availability. However, working capital is more than just cash and bank balances. Current assets and liabilities also make up for the business's working capital.

Let me explain using an example. Let us assume that $ 5000 is receivable from a debtor on 1-Apr-17, and $ 4000 is also payable to a creditor on the same day. However, your organization does not have sufficient cash or bank balance to pay off the debtor. Therefore, the simple solution is to recover the funds from the creditor and pay the same to the debtor. This is how the day-to-day fund requirement of the company gets managed by maintaining appropriate working capital, which need not only be balanced in the bank or cash in hand.

The formula to calculate working capital = Current Assets – Current Liabilities; looks fairly simple, but working capital management practically involves – debt management, inventory management, revenue collection, short-term investments, and planning payments as per the networking capital inflow.

Question #11 - Assume you are given financial statements of three different competitors. You must ascertain which of these three is in the best financial shape. What are the two main parameters that you will use to judge?

The two parameters which I would like to check are:

a) Correlation between revenue and profit of the organization – A company with a higher revenue is not necessarily doing well.

E.g., Let us say that the revenue of Company A is $ 1000 but against which it has booked heavy losses. On the other hand, Company B is only $ 500, but it has already broken even and is earning a profit of around 7% of total revenue. Needless to say that Company B is more efficient and profitable. The management of this company is moving in the right direction. The more the profit, the better the dividend declared for its shareholders and the better its capacity to pay off the debt and interest.

b) Debt-equity ratio - A proper balance needs to be maintained between the two – debt and equity. Only debt means high-interest costs. Only equity means that the company is not leveraging the opportunities available in the market for lower interest rates.

Tip 1: Liquidity is another parameter that can be mentioned if required. For this, you can calculate the working capital of each company and make conclusions. The working capital should not be too high, which results in the blocking of the company's funds, nor should it be too low, which will not fulfill its day-to-day funding requirements.

Tip 2: Interview preparation should include the study of key ratios of the given industry and the company's competitors. When answered with the ratios, the above question will create a bigger and better impact on the interviewer. Have a look at this complete guide to Ratio Analysis Formula

Question #12 - Since you mentioned that MS Excel would be your best friend, give us three instances in which Excel will make your life easier

• Various reports can be extracted from the ERP. However, reports are often required in specific formats, and this may not be possible in the ERP. This is where excel comes into the picture. Data can be sorted and filtered, redundant data fields can be deleted, and the data can then be presented in a customized format.
• Excel is also required for linking multiple sets of data. So different reports can be extracted from the ERP using the VLOOKUP in Excel / hlookup function. They can be clubbed into one report.
• The use of Excel becomes the most important for doing various reconciliations. These cannot be done in the ERP. E.g., if I need to do a vendor ledger balance reconciliation, I will extract the vendor ledger from the ERP in Excel and get a similar Excel from the vendor for his ledger. All the reconciliations will then have to be done in Excel only.
• Also, most organizations make their financial statements in Excel as they have to adhere to the specific statutory format, which may not be extracted from the ERP. So again, Excel acts as a savior in this case.

Brushing up basic Excel will come in handy during the interview. Some of the formulae that one needs to know are sum, sumproduct, sumif, countif, subtotal, min, max, vlookup, hlookup, pivot tables, round, etc. So have a look at this.

Question #13 -Suggest improving the working capital flow of the company

According to me, stock-in-hand can be the key to improving the company's working capital. Out of all the components of working capital, the stock is controllable by us. We can pressurize our debtors to pay us instantly, but we cannot have direct control over them because they are separate legal entities, and in the end, they are the ones who give us business. We can tend to delay payments of our suppliers, but it spoils business relations and hampers the goodwill in the industry. Plus, if we delay payments, they might not supply goods in the future. Keeping liquidity in the form of funds in the bank can help the working capital flow, but it comes at an opportunity cost. Keeping all this in mind, I believe that inventory management can go a long way in improving the company's working capital. Excess stocking should be avoided, and the high stock turnover ratio.

This answer is also generic. Some industries work on negative working capital such as e-commerce, telecommunication, etc. So please do a bit of research about working capital before answering.

Question #14 - What does the cash flow statement say about the company?

It is very interesting to correlate the cash flow statement and the profit and loss statement of the company. I am trying to say that high revenue does not mean that the company has a high availability of cash. If the company has excess liquid cash, it does not mean that the company has earned a profit.

Cash flow shows how much CASH the company has generated in the given year. It can also show if the company is in a position to pay for its operations soon. This helps to answer what investors want to know before investing – will the company be able to pay the interest/principal/dividends as and when due? Earning profit is one thing, but being able to generate cash when the company needs to pay its debts is another thing.

The cash flow statement has three segments - Cash Flow from operations, Cash Flow from investing activities & Cash Flow from financing activities. Operations related to day-to-day operations help the company earn revenue. Investing activities show the company's capital expenditure. Financing activities show activities such as borrowings, shares issues, etc.

Question #15 - What is the financial impact of buying a fixed asset?

From the financial statement point of view, the following will be the impact:

• Income Statement – Buying will not directly impact the income statement. However, you will charge depreciation as an expense to the income statement year on year.
• Balance Sheet – Fixed assets will increase, whereas current assets (cash paid) will decrease if the payment is made in the same financial year. If the payment is not made in the same financial year, then there will be an increase in current liabilities instead of a decrease in current assets.

Also, when depreciation is charged to the income statement, the asset will be reduced yearly.

• Cash flow statement – There will be a cash outflow shown under the cash from investing activities section of the cash flow statement.

Question #16 - What are the challenges faced by an Accountant?

An accountant must coordinate with various teams such as customer support, marketing, procurement, treasury, taxation, business development, etc. Therefore, I would say that the availability of data/details/documents from these teams on a timely basis is a key challenge an accountant faces. As already mentioned, documentation plays a key role in accounting, and without proper documentation, an accountant will not be able to post entries in the accounting system. Also, management's delay in accounting is not appreciated as updated reports / MIS are created from these accounting records.

This answer should be linked to any question on the key strengths/weaknesses of the candidate. So going with the flow of the above question, the candidate can also mention that people management is his or her key strength. Given the opportunity, he/she will be able to tackle this kind of challenge smoothly and make sure that data availability is not a hindrance.

Question #17 - If you get this job, what will your routine day of 8 hours be like?

I believe the accounting ERP used by your organization and Microsoft Excel will be my best friends, and I will be spending maximum time with these two applications at work.

A routine day will invoice the following core activities:

1. Posting various journal entries in the ERP
2. Extracting/maintaining/updating different reports required by the management (some of these reports are a list of payable amounts for the next three working days, fund position at the end of the day, debtors aging report, etc.)
3. Scrutiny and reconciliation of different ledgers
4. Checking invoices and other supporting documents required to be part of the invoice
5. Coordinating with different teams for documents / data / details

The above answer is very generic. This should be fine-tuned as per the exact job description. For example, let us say you are applying for the position of Accounts Receivable Accountant. In this case, you need to mention revenue reports, follow up with customers for payment whenever due, revenue recognition, raising invoices to customers, etc. On the other hand, if the profile is that of Accounts Payable Accountant, you need to mention purchase orders, materials receipt, releasing payment of vendors on a timely basis, etc.

Question #18 - If you are made the CFO of this company, what are the changes you would like to recommend to the Board of Directors of the company?

This is a tricky question and needs to be answered with care. It is tricky to answer this because change is acceptable to most organizations only when it leads them on the path of progress. Being the CFO is a lot of responsibility, and when you directly talk about changing things in an organization you are not even part of, it can show a lot of arrogance. At the same time, not wanting to change means you can be easily bent, which is not a good trait for a CFO. So the answer should be framed as follows:

Being the CFO of the company, my first task will be to understand the business, the Being the company's CFO, my first task will be to understand the business, the revenue model, and the processes followed at a broader level. Next, they got acquainted with the management and the team reporting to me before suggesting any changes; knowing these things is very important. Once I spend enough time in the system, I would then be able to suggest changes based on industry best practices, responses to the competitors, and shareholder expectations.

Question #19 - Tell me something about yourself

Interviewers do not ask this question to know your background. They already have your resume right in front of them, stating the facts about your academic and work experience background. Therefore, you should not repeat these things, e.g., I have completed Graduation with 85%, or I have done my Masters in Accounting from XYZ College is not what the interviewer wants to hear. Instead, the interviewers want to know what makes you a proper fit for the given job and whether you will be able to take the responsibility associated with the job.

So, instead of mentioning these things that the interviewer already knows, use this opportunity to tell them about your work experience and achievements. Properly framing this answer is the key to cracking the accounting interview. Start with your best achievement and tell them why you love what you do and how you are best at your job.

Question #20 - Share a stressful situation you have been a part of and how have you handled the situation?

The accounting and finance field is under constant pressure. It is not a job that can be taken lightly, so the interviewers ask these questions to test your composure during such stressed times. Take care to mention a genuinely stressful situation, and do not crib about the work pressure you have faced daily, as no one wants to hire someone who cannot handle work pressure.

Also, please be realistic about the stressful situation you mention. It should not sound fake. The situation can be employee fraud, massive damages to the company on account of natural calamities, income tax scrutiny of years where you were not even a part of the organization, etc.

Mentioning the situation won't be enough. You will have to elaborate on your steps during these stressful times. You will have to show that you went out of the way to get things done, and the decisions taken were in the company's best interests in those stressed times.

This article has been a list of Top 20 Accounting Interview Question and Answers. You can also look at these other sets of interview questions for further knowledge –

• Financial Modeling Interview Questions (With Answers)
• Private Equity Interview
• Valuation Interview Questions and Answers
• Credit Analyst Interview Questions