Starting your accounting career often involves passing a challenging interview. As a fresher, it’s essential to prepare yourself with fundamental knowledge and clear answers to common questions. This article presents 50 basic accounting interview questions with detailed answers.
These are frequently asked by employers and tailored for candidates who are just entering the profession. Along with a quote and key data table, this guide will ensure you’re ready for success.
1. What is accounting?
Accounting is the systematic process of recording, reporting, and analyzing financial transactions. It helps businesses track their income, expenses, and overall financial health.
2. Define GAAP.
GAAP stands for Generally Accepted Accounting Principles, a framework of rules and standards for financial reporting in the U.S.
3. What are the primary types of accounts?
The primary types of accounts are assets, liabilities, equity, revenues, and expenses.
4. What is a balance sheet?
A balance sheet is a financial statement that summarizes a company’s assets, liabilities, and shareholders’ equity at a specific point in time.
5. What is double-entry accounting?
Double-entry accounting involves recording each transaction in two accounts—debit and credit. It ensures that the accounting equation (Assets = Liabilities + Equity) stays balanced.
6. Explain the accounting equation.
The accounting equation is:
Assets = Liabilities + Equity
This equation forms the foundation of a company’s balance sheet and shows the relationship between what a company owns and owes.
7. What are assets?
Assets are resources owned by a company that have economic value, such as cash, inventory, equipment, and real estate.
8. What are liabilities?
Liabilities are financial obligations or debts that a company owes to outside parties. Examples include loans, accounts payable, and mortgages.
9. What is equity?
Equity represents the owner’s claim after all liabilities have been paid. It’s the difference between total assets and total liabilities.
10. What is accrual accounting?
Accrual accounting records income and expenses when they are incurred, not when cash is exchanged.
11. What is cash accounting?
Cash accounting records transactions only when cash is received or paid. It is commonly used by smaller businesses.
12. Define a ledger.
A ledger is the main book that contains all the financial transactions recorded by the company, categorized by account.
13. What is a journal in accounting?
A journal is a detailed account that records all the financial transactions in chronological order before they are posted to ledgers.
14. What is a trial balance?
A trial balance is a report that lists all the accounts and their balances at a specific point in time to ensure that total debits equal total credits.
15. Explain depreciation.
Depreciation is the method of allocating the cost of a tangible asset over its useful life.
16. What is amortization?
Amortization refers to spreading out the cost of an intangible asset, such as a patent, over its useful life.
17. Define a fixed asset.
A fixed asset is a long-term resource, such as buildings, machinery, or land, that is used by a company in its operations.
18. What is working capital?
Working capital is the difference between a company’s current assets and current liabilities. It measures the company’s short-term financial health.
19. What are current assets?
Current assets are assets that can be converted into cash within one year, such as inventory, accounts receivable, and cash equivalents.
20. What are current liabilities?
Current liabilities are obligations a company expects to pay off within the year, such as accounts payable and short-term loans.
21. What is an income statement?
An income statement is a financial document that summarizes revenues, expenses, and profits over a specific period.
22. What is retained earnings?
Retained earnings are the portion of net income that is not distributed to shareholders but reinvested in the business.
23. What is accounts payable?
Accounts payable is money that a business owes to suppliers for items or services purchased on credit.
24. What is accounts receivable?
Accounts receivable refers to money owed to a business by its customers for products or services provided on credit.
25. What is a fiscal year?
A fiscal year is a 12-month period used for accounting purposes that does not necessarily align with the calendar year.
26. Define inventory.
Inventory is the stock of goods and materials that a business holds for the purpose of resale.
27. What is the difference between a trial balance and a balance sheet?
A trial balance is an internal report used to verify that debits and credits match, while a balance sheet is a formal financial statement summarizing assets, liabilities, and equity.
28. Explain the term “bad debt.”
Bad debt is an account receivable that is unlikely to be collected and is written off as an expense.
29. What is a bank reconciliation?
Bank reconciliation is the process of comparing a company’s records to the bank statement to ensure accuracy and consistency.
30. What is petty cash?
Petty cash is a small amount of money kept on hand for minor, everyday expenses.
31. Define a contra account.
A contra account is an account that offsets another account, such as accumulated depreciation offsetting the asset value.
32. What is a contingent liability?
A contingent liability is a potential obligation that depends on the outcome of a future event, like a pending lawsuit.
33. What is a deferred revenue?
Deferred revenue is money received for goods or services that have not yet been delivered or performed.
34. What is a deferred expense?
A deferred expense is an advance payment for services or products that will be recognized as an expense in a future period.
35. Define goodwill in accounting.
Goodwill is an intangible asset that arises when one company acquires another and pays more than the fair market value of its assets.
36. What is a chart of accounts?
A chart of accounts is an index of all the financial accounts in the general ledger of a company, used to organize its financial transactions.
37. What is the difference between a cost and an expense?
A cost is the amount spent to acquire an asset, while an expense is the amount used to generate revenue within a specific period.
38. Define capitalization in accounting.
Capitalization refers to recording a cost as an asset rather than an expense, which is then depreciated over time.
39. What is a cash flow statement?
A cash flow statement tracks the inflow and outflow of cash in an organization, divided into operating, investing, and financing activities.
40. What are financial statements?
Financial statements are formal records of the financial activities of a company. They include the balance sheet, income statement, and cash flow statement.
41. What is reconciliation in accounting?
Reconciliation is the process of comparing two sets of records to ensure they are consistent and accurate.
42. What is a provision in accounting?
A provision is an amount set aside from profits to cover known liabilities or losses, such as warranties or tax obligations.
43. Define a journal entry.
A journal entry is a record of a financial transaction in a company’s accounting system, including the date, amounts debited, and credited.
44. What is a prepaid expense?
A prepaid expense is a payment made for goods or services that will be received in the future, such as insurance or rent.
45. What is a voucher in accounting?
A voucher is a document that serves as proof of a financial transaction, used to authorize a payment.
46. What is a payroll?
Payroll refers to the total amount paid to employees for their services, including wages, bonuses, and deductions.
47. Define a business entity concept.
The business entity concept states that a business’s financial records must be separate from those of its owners or other businesses.
48. What is an accrued expense?
An accrued expense is an expense that has been incurred but not yet paid or recorded at the end of the accounting period.
49. What is the purpose of a financial audit?
A financial audit is conducted to verify the accuracy and reliability of a company’s financial statements.
50. What is a T-account?
A T-account is a visual aid used to track individual transactions in double-entry accounting, showing debits on the left and credits on the right.
Table: Key Differences Between Accrual and Cash Accounting
| Feature | Accrual Accounting | Cash Accounting |
|---|---|---|
| Recognition of Income | When earned, regardless of cash received | When cash is received |
| Recognition of Expenses | When incurred, regardless of payment | When cash is paid |
| Common Usage | Large businesses, public companies | Small businesses, sole proprietors |
Quote:
“Accounting is the language of business.” — Warren Buffett
Conclusion
Preparing for an accounting interview requires a good understanding of basic concepts. Mastering these 50 basic accounting interview questions will help you showcase your knowledge and improve your chances of landing the job.
