Accounting Interview Questions Part - 2

Are you preparing for interviews? 

      Then follow my blog it will be useful to you.

       Generally some companies will ask basic accounting questions, and some companies will ask in depth i.e chain format questions or linked questions to know the interviewee skills. They used to test your knowledge. So i am providing some of frequently asked questions, so please have a look it will help you to crack the interview.

  

Deferred income:

  It is also known as income received in advance. The income which is not earned but received in advance are known as Deferred income. It is an advance payment from a customer for goods or services that have not yet been delivered.

 

What is Derivatives:

  A derivative is an instrument whose value is derived from the value of one or more underlying assets, which can be commodities, precious metals, currency, bonds, stocks, stocks indices, etc. 

    There are mainly four types of derivative contracts such as futures, forwards, options & swaps. 

What is Swaps:

 Swaps are private agreement between two parties to exchange cash-flows in the future according to a pre-agreed formula. Swaps are two types, they are

• Interest rate swap
• currency swap

Interest rate swap:

  Interest rate swap is an agreement between two parties to exchange interest obligations  or receipts for an agreed period of time. Interest rate swaps are generally used when two parties are able to borrow at different interest rate system i.e, fixed or floating rate of interest.

Currency Swap:

  

  It is an agreement between two parties to exchange payments or receipts in one currency for payment or receipts in another currency.

What is Financial markets:

   A financial market is a market that brings buyers and sellers together to trade in financial assets such as stocks, bonds, commodities, derivatives, currencies etc. The purpose of a financial market is to set prices for global trade, raise capital, and transfer liquidity and risk.

    Financial market is two types they are,

1. Money market
2. Capital market 

Capital market is of two types they are,

• Primary market
• Secondary market

Primary market:

 Primary market is also known as new issue market. The primary market deals with those securities which are issued to the public for first time. It deals with long term financial instruments.

Secondary market:

Secondary market is also known as stock exchange or offer market. Secondary markets deals with previous issued securities. Securities are not directly issued by the company.

What is General reserve:

  General reserve is a reserve which is used  to overcome unexpected expenses or losses.

What is Bond:

A bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include municipal bonds and corporate bonds. 

What is BRS:

  BRS refers to Bank reconciliation statement. it is a statement which shows difference between bank balance as per cash book and bank balance as per pass book.

What is Financial leverage:

  Financial leverage is the use of debt to buy more assets. Leverage is employed to increase the return on equity. However, an excessive amount of financial leverage increases the risk of failure, since it becomes more difficult to repay debt.

What is Repo Rate:

 It is the rate at which RBI lends short term money to the bank against securities. It is also known as repurchase rate or repurchase agreement.

What is Arbitrage:

 The opportunity to buy an asset at a low price then immediately selling it on a different market for a higher price.

What is Mutual funds:

A mutual fund is an investment vehicle where many investors pool their money to earn returns on their capital over a period. This corpus of funds is managed by an investment professional known as a fund manager or portfolio manager.

What is Equity capital:

  

  The Equity Capital refers to that portion of the organization’s capital, which is raised in exchange for the share of ownership in the company. These shares are called the equity shares.

What is forward contract:

   A forward contract is a private agreement between two parties giving the buyer an obligation to purchase an asset (and the seller an obligation to sell an asset) at a set price

at a future point in time.

What is Variable cost:

   Variable costs are costs that change as the quantity of the good or service that a business produces changes. Variable costs increase or decrease depending on a company's production volume, they rise as production increases and fall as production decreases.

What is deferred revenue expenditure:

    

  A heavy expenditure of revenue nature whose benefit will be available for more than one year cannot be fairly treated as a Revenue expenditure. The whole of such expenditure cannot be  debited to profit and loss account only in one year. Such expenditure is classified as deferred revenue expenditure.

Ex: Heavy advertisement on introducing a new product, Preliminary expenses. exceptional repairs, Research and development expenses.

What is Called up capital:

 The amount on shares which is actually demanded by the company to be paid is known as Called up capital.

 

What is Paid up capital:

   

  It is the part of the called up capital  which is actually paid by the shareholders.

What is Capital Budgeting:

  Capital budgeting means the long term investment decision of a firm. It is probably the most crucial financial decision of a firm. It relates to the selection of an investment proposal whose benefits are likely to be available in future over the life time of the project.

Accounting Interview Questions Part -1

  Are you preparing for an accounting interview? There is a lot of competition in the job market for the position of accounting and you need to be well prepared.

  I will provide some of the common accounting  interview questions along with answers please go through it.

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Name Different Accounting Concepts:

  

   Actually Accounting principles are classified into two categories. They are 

1. Accounting concepts 
2. Accounting conventions

Accounting concepts are,

• Business entity concept
• Dual aspect concept
• Going concern concept
• Money Measurement concept
• Objective evidence concept
• cost concept
• Accounting period concept
• Accrual concept
• Matching cost concept
• Historical record concept

Accounting Conventions are 4 types,

• Disclosure
• Materiality
• Consistency
• conservatism

How many types of business transactions are there in accounting?

   There are two types of  business transactions in accounting i.e., revenue and capital.

What is GST?

  GST stands for Goods and Service Tax. It is an indirect tax other than income tax. Its charges on the value of the service or product sold to a customer. The customer/clients pay the GST, and the seller deposits the GST with the government. Some countries have sales, service tax with works more or less the same as GST.

Do you think there is any difference between inactive and dormant accounts?

     Yes, both are different terms in accounting. Inactive accounts mean that accounts have been closed and will not be used in the future as well. While dormant accounts are those that are not functional today but may be used in the future.


Define fictitious assets?

  These are the assets that cannot be shown or touch. Fictitious assets can only be felt such as goodwill, rights, etc.

Differentiate Public and Private Accounting?

    Public accounting is a type of accounting that is done by one company for another company. Private accounting is done for your own company.

Can you name different branches of accounting?

There are different branches of accounting, 

•  Financial Accounting
• Management Accounting
• Cost Accounting
• Inflation Accounting
• Human resource Accounting

 Differentiate Accounting and Auditing?

Accounting is all about recording daily business activities while auditing is the checking that whether all these events have been noted down correctly or not.

 

What is Accounts Payable?

  

  The amount a company owes because it purchased goods or services on credit from a vendor or supplier. Accounts payable are liabilities.

What is Accounts Receivable?

  The amount a company has right to collect because it sold goods or services on credit to a customer. Accounts receivable are assets.

What is deferred tax liability?

Deferred tax liability signifies that a company may pay more tax in the future due to current transactions.

What is the deferred tax asset?

 

  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 accounting equation?

  The accounting is all about assets, liabilities, and capital. Hence, its equation is summarized as,

               Assets = Liabilities + Owners equity

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What is scrap value in accounting?

   Scrap value is the residual value of an asset that any asset holds after its estimated lifetime.

What are the bills receivable?

   

    Bills receivable are the proceeds or payments, which a merchant or a company will be receiving from its customers.

 

What is Marginal cost?

   If there is any increase in the number of units produced, the total cost of output is changed. Marginal cost is that change in the cost of an additional unit of output.

Define Depreciation?

    Depreciation is the gradual reduction or loss in the value of fixed assets like building, plant, furniture etc., There are different methods of providing depreciation, they are 

• Fixed installment method
• Diminishing balance method
• Annuity method
• Depreciation fund method
• Insurance policy method
• Depletion method
• Revaluation method
• Machine hour rate method
• Mileage method

 Differentiate between provision and reserve? 

  Provisions:  This refers to keeping the money for a given liability. In short, Expenses.

 Reserves:  This refers to retaining some amount from the profit for future use. In short,  Profits.

 

   

What is Bad debts?

     Bad debts expense is related to a company's current asset accounts receivable. Bad debts expense is also referred to as uncollectible accounts expense or doubtful accounts expense. Bad debts expense results because a company delivered goods or services on credit and the customer did not pay the amount owed.

What is Contingent liability?

     A contingent liability is a liability or a potential loss that may occur in the future depending on the outcome of a specific event. Potential lawsuits, product warranties, and pending investigation are some examples of contingent liability.

Golden Rules of Accounting

Types of Accounts / Classification of Accounts:

   All business transactions are broadly classified into three categories

• Those relating to persons 
• Those relating to property (assets)
• Those relating to income and expenses

   Thus, three classes of accounts are maintained for recording all business transactions. They are,

1. Personal Accounts
2. Real Accounts
3. Nominal Accounts

  

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    Personal Accounts:

• Accounts which shows transactions with persons are called 'Personal accounts'
• A separate account is maintained in the name of each person for recording the benefits received from, or given to the person in the course of dealings with him.
• Personal accounts also include accounts in the name of firms, companies or institutions.

Impersonal Accounts:

    Impersonal accounts are two types they are,

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•  Real accounts
•  Nominal accounts

  Real Accounts:

• Accounts relating to properties or assets are known as 'Real accounts'.
• These are the accounts of all the assets and liabilities of the organization. 
• Every business needs assets such as machinery, furniture etc., for running its activities. A separate account is maintained for each asset owned by the business.

  Tangible Real Account: It consists of assets, properties or possessions that can be touched, seen and measured. 

   For example:

   Plant A/c, 

   Furniture and Fixtures A/c,

   Cash A/c, etc.

Intangible Real Account: It consists of assets or possessions that cannot be touched, seen and measured but possess a monetary value and thus can be purchased and sold also.

 For example: 

 Goodwill, 

 Patents, 

 Copyrights, etc.

Nominal Accounts:

• Accounts relating to expenses, losses, incomes and gains are known as 'Nominal Accounts'
• A separate account is maintained for each item of expenses, loss, income or gain.
• Wages account, salaries account, commission received account and interest received account are some of the examples of Nominal accounts.

Golden Rules of the Accounts: 

  Before recording transactions it is necessary to know which of the account is to be debited and which is to be credited. There are three different rules, they are

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 Personal accounts:

   The account of the person receiving benefit (receiver) is to be debited and the account of the person giving the benefit (giver)

is to be credited

    " Debit the receiver 

     Credit the giver"

 Real accounts:

  When an asset is coming into the business, the account of that asset is to be debited. When an asset is going out of the business, the account of that asset is to be credited.

     "Debit what comes in 

      Credit what goes out"

Nominal accounts:

     When an expense is incurred or loss suffered, the account representing the expense or loss is to be debited. When any income is earned or gain made, the account representing the income or gain is to be credited.

  " Debit all expenses and losses

    Credit all incomes and gains"

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Assets and Liabilities

ASSETS: 

   Which creates present and future  some economic value is called an asset.

   The valuable things owned by the business are known as assets. These are the properties owned by the business.

CLASSIFICATION OF ASSETS:

1. Fixed assets 
2. Liquid assets
3. Fictitious assets
4. Intangible assets
5. Wasting assets  

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Lets discuss about Assets,

    FIXED ASSETS:

•    These assets are acquired for long-term use in the business.They are not meant for resale.
• The term fixed assets generally refers to the long-term assets and tangible assets.
• Land and buildings, plant and machinery, vehicles and furniture etc., are some of the examples of  fixed assets.

 Tangible assets and Intangible assets: 

     Tangible assets are physical, they include cash, inventory, vehicles, equipment, buildings and investments.

     Intangible assets do not exist in physical form and include things like accounts receivable, prepaid expenses, and patents and goodwill.

LIQUID ASSETS:

• These assets also known as circulating , fluctuating or current assets.
• These assets can be converted into cash as early as possible.
• Current assets are cash, bank balance, debtors, stock, investments.

 FICTITIOUS ASSETS:

• Fictitious assets are those assets, which do not have physical form. They do not have any real value.
• The examples of  these assets are loss on issue of shares, preliminary expenses etc.

 WASTING ASSETS:

• Wasting assets are those assets which are consumed through being worked or used.  
• Mines are the examples of wasting assets.

CAPITAL: 

 Capital consists of all current assets and fixed assets. Cash in hand, cash at bank, buildings, plant and furniture etc., are the capital of the business.

    Capital is classified as,

1. Fixed capital 
2. Working capital

Fixed capital:

• The amount invested in acquiring fixed assets is called fixed capital.






• Plant and machinery, vehicles, furniture and buildings etc,. are some of the examples for fixed capital.

Working capital:

• The part of capital available with the firm for day-to-day  working of the business is known as working capital.
• Working capital can also be expressed as,

    Working capital = current assets - current liabilities

 LIABILITIES:

    Liabilities are the obligations or debt payable by the enterprise in future in the form of money or goods. 

    Liabilities are can be classified as,

1. Fixed liabilities 
2. Current liabilities 
3. Contingent liabilities 

 Fixed liabilities:

• These liabilities are payable generally, after a long-period.   
• Capital loans, debentures, mortgage loans etc., are examples of fixed liabilities.

Current liabilities:  

• Liabilities payable within a year are termed as current liabilities.
• The value of these liabilities goes on changing. Creditors, bills payable and outstanding expenses etc., are current liabilities.

 Contingent liabilities:

• These are not the real liabilities. Future events can only decide whether it is really a liability or not. 
• Due to their uncertainty, these liabilities are termed as contingent or doubtful liabilities.

Systems of Accounting

Mainly there are 3 systems of Accounting.

       1.Cash system of Accounting

      2.Mercantile system of Accounting

       3.Mixed system

Let's discuss about systems of Accounting.

CASH SYSTEM OF ACCOUNTING:

•   In this system, Accounting entries are made only when cash is received or paid. No entry is made when a payment or receipt is merely due.
• Generally non-profit organizations particularly professionals prepare receipts and payments account on this basis.

 MERCANTILE SYSTEM OF ACCOUNTING:

• This is also known as accrual system of accounting. Under this system entries are made on the basis of amounts having become due for payment or receipt.
• The objective of this system is to relate the revenue in terms of cost so that reported net income measures a firm's performance during a period instead of merely listing its cash receipts and payments.

 MIXED SYSTEM:

• This system is the mixed of cash system and mercantile system.
• Under this system Income are recorded on cash basis and expenses are recorded on accrual basis.
• The net income is ascertained by matching expenses on accrual basis with incomes on cash basis.

DOUBLE ENTRY SYSTEM:

• Double entry system is a scientific  way of presenting accounts. All business concerns feel it convenient to prepare the accounts under double entry system.
• Under dual aspect concept the accountant deals with the two aspects i.e, receiving aspect and giving aspect.
• Receiving aspect is known as 'Debit aspect' and giving aspect is known as 'Credit aspect'. These two aspects are useful in preparation of trail balance and final accounts.

SINGLE ENTRY SYSTEM:

• Single entry system is crude and unscientific method of maintaining accounts. Under this system all the transactions are not recorded.
• Some times the two aspects of a transaction are recorded and sometimes transactions are not recorded completely. So we may say that it is a mixture of double entry and no entry.
• The accounts maintained under this system are incomplete and unsystematic. They are not reliable, so it is not possible to prepare proper trail balance, profit and loss account under this system.
• It is useful to small business concerns.

Branches of Accounting

Branches of Accounting / Streams of Accounting:

 The important branches of Accounting are,

    1.Financial Accounting
    2.Cost Accounting
    3.Management Accounting
    4.Inflation Accounting
    5.Human Resource Accounting

      

What is Financial Accounting:

•   The main purpose of Accounting is to ascertain the financial results i.e., profit or loss in the operations during a specific period of time.
•   It is also aimed at knowing the financial position i.e., assets, liabilities and equity position at the end of the year.
• It provides relevant data which is helpful in decision making.
• It also helpful for planning and controlling the operations of the business.

What is Cost Accounting:

•  The purpose of Cost Accounting is to analyse the expenditure so as to ascertain the cost of various products manufactured by the firm and fix the prices.
• It also helps in controlling the costs.
• It also provides necessary costing information to management for decision making.                                                     

  What is Management Accounting:   

• The purpose of Management Accounting is to assist the management in taking rational policy decisions.
•  This branch of accounting is mainly concerned with providing the necessary accounting information about funds, costs, profits, etc., to the management.

What is Inflation Accounting:

•   It is concerned with the adjustment in the value of assets and of profit in light of changes in the price level.
• It is concerned with the overcoming of limitations that arise in financial statements on account of recording of the assets at their historical or original cost.

What is Human Resource Accounting:

•    Human resource accounting is a accounting which seeks to report and emphasize the importance of human resources in a company's earning process and total assets.
• It is concerned with the process of identifying and measuring data about human resources. 
• In simple words it is accounting for people as organisational resources.

Accounting System

Accounting System: Accounting system has two stages, they are

•  Book-keeping
•  Accounting

  what do you mean by Book-keeping:

     Book-keeping involves the chronological recording of financial transactions in a set of books in a systematic manner.

 what do you mean by Accounting:

     Accounting system is a means of collecting, summarizing, analyzing and reporting in monetary terms, the information about the business.

  Difference between Book-keeping and Accounting:

Object:

  The object of Book-keeping is to prepare original books of accounts.It is restricted to journal, subsidiary books and ledger accounts only.

  The main object of accounting is to record, analyse, and interpret the business transactions.

Level of work:

Book-keeping is restricted to level of work. Clerical work is mainly involved in it.

Accountancy is concerned with all levels of management.

Principles of accountancy:

In Book-keeping accounting concepts and conventions  will be followed by all without any difference.

On the other hand, various firms follow various methods of reporting and interpretation in accounting.

Final Result:  

In Book-keeping it is not possible to know the final result of business every year.

Accounting gives the net results of the business every year.