28 Basic Accounting Interview Questions | Accountant Interview Questions | Freshers & Experienced

Basic Interview Questions for Accountants

Introduction to the Video

• This video covers essential interview questions for accountants, focusing on financial recordkeeping concepts such as journals, ledgers, subsidiary books, bank reconciliation statements, error rectification, and final accounts.

• The content is designed for both fresh graduates seeking their first job and experienced professionals aiming for career growth. It emphasizes thorough preparation for interviews.

Key Accounting Concepts

Difference Between Accrual and Cash Accounting

• The accrual method recognizes revenue and expenses when they are anticipated (e.g., recognizing sales in Q1 even if payment is received in Q2), while the cash method records them only upon actual receipt or payment.

• Accrual accounting is more suitable for larger companies with complex transactions due to its clarity in profitability and tax planning benefits; cash accounting is often used by small businesses for its simplicity.

Understanding Vouchers

• A voucher serves as legal evidence of a payment made by a business to a specific party. There are two types: internal vouchers (prepared within the organization) and external vouchers (generated outside). Examples include receipts from taxi fares or utility bills.

• Providing additional details about vouchers during an interview can help candidates stand out from others who may only give basic definitions.

Tax Invoices Explained

• A tax invoice is prepared by sellers at the time of sale, detailing goods sold, rates, terms of payment, discounts, taxes applicable (CGST/SGST), and total payable amounts. For buyers, it acts as a purchase invoice when goods are bought on credit.

Parties Involved in a Check

• There are three parties involved in a check:

• Drawer: The person writing the check.

• Drawee: The bank on which the check is drawn.

• Payee: The individual or entity receiving the funds from the check. Many candidates struggle with this question during interviews despite its apparent simplicity.

Combined Journal Entries

• A combined journal entry occurs when multiple accounts are debited or credited within one entry; this can simplify recording complex transactions like starting a shop with various assets (goods, laptops, cash). An example illustrates how these entries might be structured effectively.

Ledger Overview

• A ledger functions as the principal book of accounts that summarizes all financial transactions across different accounts such as assets, capital, expenses, and revenues; it provides clarity that journals alone cannot offer regarding specific expenditures or payables.

Credit Balance vs Debit Balance

• Accounts have either debit or credit balances based on their totals:

• If debits exceed credits in an account, it has a debit balance.

Understanding Accounting Basics

Key Concepts in Personal Accounts

• A personal account with a debit balance indicates a debtor, while a credit balance signifies a creditor.

• Real accounts pertain to assets and properties (e.g., furniture account, cash account) and typically show a debit balance.

• Nominal accounts can have either debit or credit balances and relate to income, expenses, gains, and losses.

Trial Balance Explained

• A trial balance is an abstract of all ledger accounts on a specific date, showing both credit and debit balances.

• It can be prepared annually or periodically based on business needs; it verifies the arithmetic accuracy of books and aids in preparing final accounts.

Gross vs. Net Trial Balance

• The gross trial balance displays total debits and credits without disclosing individual account balances.

• In contrast, the net trial balance shows each ledger account's balance next to its name, making it more commonly used in practice.

Understanding Subsidiary Books

• Subsidiary books are necessary for large businesses to record transactions separately rather than in one journal.

• Important subsidiary books include cash book, petty cash book, purchase book, sales book, purchase returns book, sales returns book, and journal proper.

Advantages of Subsidiary Books

• These books save time by allowing specialized teams to handle related tasks simultaneously.

• They enhance internal checks and provide quick references when needed.

Cash Book as Both Journal and Ledger

• The cash book records all cash and bank transactions with both debit and credit sides; thus it functions as both a journal (for original entries) and a ledger (for classified records).

Bank Account Balances

• A bank account can have both credit (overdraft indicating short-term loans from the bank to current account holders) and debit balances.

Handling Dishonored Checks in Cash Book

Case 1: Received Check Dishonored

• If you receive a check worth ₹5,000 that gets dishonored:

• Initially debit your bank account by ₹5,000 upon receipt.

• Reverse this entry by crediting the bank account by ₹5,000 if dishonored.

Case 2: Issued Check Dishonored

• If you issue a check for ₹5,000 that gets dishonored:

• Credit your bank account by ₹5,000 initially for payment.

• Reverse this entry by debiting the bank account by ₹5,000 if dishonored.

Contra Entries Explained

• Contra entries occur when transactions affect both cash and bank accounts simultaneously but in opposite ways (e.g., depositing or withdrawing cash from the bank).

Purchase Book Overview

• The purchase book (or purchase journal/daybook) systematically records all purchases made on credit for manufacturing or resale purposes; consumable items are not included as they are operational expenses.

Understanding Key Accounting Concepts

Accrual Basis and Chronological Recording

• The accrual basis of accounting records purchases when incurred, ensuring entries are chronologically sequential as they occur. This detail can set candidates apart in interviews, as many overlook such specifics.

Purchase Return Process

• When returning goods, the purchase return book (or journal) is utilized. A debit note must be prepared for each return, with the original sent to the supplier for their records. The supplier then issues a credit note in response.

Sales Book and Returns

• The sales book (or sales journal) records all credit sales; cash sales and asset sales on credit are excluded. If goods sold on credit are returned, entries go into the sales return book, necessitating a credit note to adjust the buyer's account accordingly.

Credit Note vs Debit Note

• A fundamental distinction exists between credit notes and debit notes: a credit note is issued by the seller while a debit note is issued by the buyer. Understanding this difference is crucial for accounting discussions in interviews.

Journal Proper Entries

• Journal proper or general journal captures miscellaneous transactions that lack dedicated journals, including adjustments and corrections. This serves as an essential tool for recording infrequent entries effectively.

Bank Reconciliation Statement Explained

Purpose of Bank Reconciliation

• A bank reconciliation statement compares internal accounting records with actual bank balances to identify discrepancies which may arise from various reasons like procedural errors or fraud attempts. Regular reconciliation helps maintain accurate financial records.

Common Discrepancies

• Frequent causes of discrepancies include unaccounted bank charges, transaction recording errors, outstanding checks not cleared by banks, deposits not yet recorded by banks, and timing differences in record keeping between parties involved. Periodic reconciliations help address these issues effectively.

Payment Systems Overview

IMPS vs NEFT vs RTGS

• IMPS (Immediate Payment Service) allows instant interbank electronic funds transfers available 24/7 in India; NEFT (National Electronic Funds Transfer) caters to smaller transactions while RTGS (Real-Time Gross Settlement) is designed for larger fund transfers only during banking hours. Understanding these systems is vital for efficient financial operations in businesses.

Understanding Depreciation

Definition and Importance of Depreciation

• Depreciation reflects an asset's value reduction over time due to wear and tear or obsolescence; it’s essential for accurately determining business value and making provisions for asset replacement even if an asset isn't actively used—except land which appreciates instead of depreciating.

• Charging depreciation impacts profit-loss accounts as it represents non-cash expenditure but remains critical for financial accuracy and planning purposes.

• Preparation leads to comprehensive answers that distinguish candidates during interviews regarding complex topics like depreciation.

• Candidates should emphasize understanding both basic definitions and nuanced implications of depreciation in their responses during discussions or interviews about accounting practices.

• Recognizing that trial balance agreement does not guarantee error-free accounts highlights the importance of thorough review processes beyond arithmetic accuracy alone.

Understanding Errors in Accounting

Types of Errors in Accounting

• There are various errors that can occur in accounting books which may not be reflected on the trial balance, including:

• Errors of Omission: Transactions that are partially or completely omitted from records.

• Errors of Commission: Incorrect entries made in the accounts.

• Errors of Principle: Misclassification between capital and revenue expenditures.

• Compensating Errors: Two errors that offset each other, resulting in no net effect on the trial balance.

Detailed Explanation of Errors

• Errors of Omission: For instance, failing to record credit purchases means neither the creditor's account is credited nor the purchaser's account debited. This type does not appear on the trial balance.

• Errors of Principle: These arise from incorrect classification; amounts may be recorded correctly but under wrong accounts. They also do not show up on the trial balance.

• Compensating Errors Example: If a payment of ₹5,000 to RAM is incorrectly posted as ₹500 and another payment of ₹500 to Sham is posted as ₹5,000, their net effect cancels out and does not affect the trial balance.

One-Sided vs. Two-Sided Errors

• One-Sided Errors:

• Affect only one account and can disrupt the agreement of the trial balance.

• Can be rectified before preparation by adjusting notes; if found after preparation, they require a suspense account for correction.

• Two-Sided Errors:

• Impact two or more accounts without affecting trial balance agreement.

• Rectification involves journal entries.

Profit and Loss Account (P&L)

• The P&L account is crucial for final accounts:

• It reflects indirect incomes and expenditures.

• A greater credit side than debit indicates a net profit, which is then transferred to the capital account.

• Classified as a nominal account essential for understanding business performance.

Balance Sheet Overview

• The balance sheet represents a business's financial position:

• It’s a statement rather than an account with no credit or debit sides.

• Assets are shown on one side while liabilities are displayed on another; nominal accounts do not appear here.