Basic Accounting and Financial Accounting Interview Questions and Answers

Q1). Why did you select accounting as your profession?
Ans1: Well, I was quite good in accounting throughout but in my masters, when I got distinction I decided to adopt this field as a profession.

Q2). Do you have any professional experience of this field?
Ans 2:Yes, I have worked as an accountant at two different places.

Q3). Did you use accounting applications at your previous companies or prefer working manually??
Ans3:Yes, I have used Advanced Business Solutions and AME Accounting Software in my previous jobs.

Q4). Can you name any other accounting application?
Ans4: Yes, I am familiar with CGram Software, Financial Force, Microsoft Accounting Professional, Microsoft Dynamics AX and Microsoft Small Business Financials.

Q5). Which accounting application you prefer most and why?
Ans5: I think all are good though but Microsoft Accounting Professional is best because it offers reliable and fast processing of accounting transactions that saves time and increases proficiency.

Q6). What is the abbreviation for the accounting terms debit and credit?
Ans6:Debit abbreviation is “dr” and credit abbreviation is “cr”.

Q7). How many types of business transactions are there in accounting?
Ans7:There are two types of transactions in accounting i.e. revenue and capital.

Q8. What is balance sheet?
Ans8:It is a statement that states all the liabilities and assets of the company at certain point.

Q9).  Have you ever heard about TDS, what it is?
Ans9:Yes, TDS abbreviates Tax Deduction at Source.

Q10). In balance sheet, where do you show TDS?
Ans10:It is shown on the assets section, right after the head current asset.

Q11). Do you have any idea about Service Tax or Excise?
Ans11:It is a kind of hidden tax that is included in the service provided by the service provider and paid by the service receiver.

Q12).Do you think there is any difference between inactive and dormant accounts?
Ans12:Yes, both are different terms in accounting. Inactive accounts means that accounts have been closed and will not be used in future as well. While, dormant accounts are those that are not functional today but may be used in future.

Q13).What is tally accounting?
Ans13:It is the software used for accounting in small business and shops for managing routine accounting transactions.

Q14). How can you define departmental accounting?
Ans14:It is a type of accounting in which separate account is created for departments. It is managed separately as well as shown independently in the balance sheet.

Q15).Define fictitious assets?
Ans15:These are the assets that cannot be shown or touch. Fictitious assets can only be felt such as good will, rights etc.

Q16). By saying, perpetual or periodic inventory system; what do we mean?
Ans16:In the first one i.e. the perpetual inventory system, the accounts are adjusted on continual basis. In the periodic inventory system, the accounts are adjusted periodically.

Q17). In accounting, how do you define premises?
Ans17:Premises refer to fixed assets that are shown in the balance sheet.

Q18). In accounting, VAT abbreviates what?
Ans18:VAT means Value Added Tax.

Q19).Do you possess any knowledge about accounting standards?
Ans19:Yes, as per my knowledge there are total 33 accounting standards published so far by ICAI. The purpose of these standards is to implement same policies and practices in any country.

Q20). What is ICAI?
Ans20:It is the abbreviation of Institute of Chartered Accountants in India.

Q21) .How can you explain the basic accounting equation?
Ans21:We know that accounting is all about assets, liabilities and capital. Therefore, the accounting equation is:
Assets = Liabilities + Owners Equity.

Q22).Define Executive accounting?
Ans22:It is a type of accounting that is specifically designed for the business that offers services to users.

Q23).Define Public accounting?
Ans23:Public accounting offers audits and CPAs to review company financial records to ensure accountability. It is for general public.

Q24). What is a CPA?
Ans24:CPA stands for Certified Public Accountant. To become a CPA, one should have to do many other qualifications as well. It is a qualification with 150 hour requirement; it means that one should complete 150 credit hours at any accredited university.

Q25) .What do you think is bank reconciliation statement?
Ans25:A reconciliation statement is prepared when the passbook balance differs from the cashbook balance.

Q26). Differentiate Public and Private Accounting?
Ans26:Public accounting is a type of accounting that is done by one company for another company. Private accounting is done for your own company.

Q27) .What is project implementation?
Ans27:Project implementation involves six steps in total such as:

  • Identify Need
  • Generate and Screen Ideas
  • Conduct Feasible Study
  • Develop the Project
  • Implement the Project
  • Control the Project

Q28) .Do you think Accounting Standards are mandatory and why?
Ans28:Yes, I do believe that accounting standards play a very important role to prepare good quality and accurate financial reports. It ensures reliability and relevance in financial reports.

Q29).Can you name different branches of accounting?
Ans29:There are three branches of accounting named as “Financial Accounting”, “Management Accounting” and “Cost Accounting”.

Q30).Differentiate Accounting and Auditing?
Ans30: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.

Q31).Define dual aspect term in accounting?
Ans31:As the name implies, the dual aspect concept states that every transaction has two sides. For example, when you buy something, you give the cash and get the thing. Similarly, when you sale something, you lose the thing and gets the money. So this getting and losing is basically two aspects of every transaction.

32)   What do we mean by purchase return in accounting?
Ans32:It is the term introduced in the records for every defective or unsatisfactory good returned back to its supplier.

Q33).Define the term material facts in accounting?
Ans33:Material facts are the bills or any document that becomes the base of every account book. It means that all those documents, on which account book is prepared, are called material facts.

Q34). Have you ever prepared MIS reports and what are these?
Ans34:Yes, I have prepared few MIS reports during my previous jobs. MIS reports are created to identify the efficiency of any department of a company.

Q35). Define company’s payable cycle?
Ans35:It is the time required by the company to pay all its account payables.

Q36). Define retail banking?
Ans36:It is a type of banking that involves a retail client. These clients are the normal people and not any organizational customers.

Q37).How much mathematics knowledge is necessary or required in accounting?
Ans37:Not much knowledge but basic mathematical background is required in accounting for operations like addition, subtraction, multiplication and division.

Q38).Define bills receivable?

Q39). Define depreciation and its types?
Ans39: By depreciation we mean that a value of an asset is decreasing as it is in use. It has two types such as “Straight Line Method” and “Written Down Value Method”.

Q40) :Differentiate between consignor and consignee?
Ans5Consigner is the owner of the goods or you can say he is the person who delivers the goods to the consignee. The consignee is the person who receives the goods.

Q41).Define balancing in accounting?
Ans41:Balancing means to equate both sides of the T-account i.e. the debit and credit sides of a T-account must be equal/balanced.

Q42). How much statistics knowledge is necessary or required in accounting?
Ans42:You must be very good at statistics if you want to do well in accounting. Otherwise, with minimum knowledge you cannot manage your day to day transactions effectively in accounting.

Q43) .Define Scrap value in accounting?
Ans43:It is the residual value of an asset. The residual value is the value that any asset holds after its estimated life time.

Q44) .Define Marginal Cost?
Ans44:Suppose you have to produce an additional unit of output. The estimated cost of additional inputs to produce that output is actually the marginal cost.

Q45).Define Partitioning in accounting?
Ans45:It is a kind of groups made on the basis of same responses by a system.

Q46) .Differentiate between provision and reserve?
Ans46:Provisions are the liabilities or the anticipated items such as depreciation. You can say provisions are expenses. Reserves are the profits of any company and a part of that profit is placed back to the business to keep it sustainable in tough times of a company.

Q47). Define Offset accounting?
Ans47:Offset accounting is one that decreases the net amount of another account to create a net balance.

Q48).Define overhead in terms of accounting?
Ans48:It is the indirect expenditure of a company such as salaries, rent dues etc.

Q49).Define trade bills?
Ans49:We know that all types of transactions need to be documented. The trade bills are the documents, generated against each transaction.

Q50).Define fair value accounting?
Ans50:As per fair value accounting, a company has to show the value of all of its assets in terms of price on balance sheet on which that asset can be sold.

 Q51). Explain what is compound journal entry?

Ans51:A compound journal entry is just like other accounting entry where there is more than one debit, more than one credit, or more than one of both debits and credits. It is essentially a combination of several simple journal entries.

Q52). What are the accounting events that are frequently involved in compound entries?
Ans52:The accounting events that are frequently involved in compound entries are;

  • Record multiple line items in a supplier invoice that address to different expenses
  • Record all bank deductions associated to a bank reconciliation
  • Record all deduction and payments related to a payroll
  • Record the account receivable and sales taxes related to a customer invoice

Q53). Mention the types of accounts involved in double entry book-keeping?
Ans53:Double entry book-keeping involves five types of accounts,

  • Income accounts
  • Expense accounts
  • Asset accounts
  • Liability accounts
  • Capital accounts

Q54): Mention what are the rules for debit and credit for different accounts to increase the amount in your business accounts?
Ans54:The rules for debit and credit for different accounts,

  • for a capital account, you credit to increase it and debit to decrease it
  • for an asset account, you debit to increase it and credit to decrease it
  • for a liability account, you credit to increase it and debit to decrease it
  • for an expense account, you debit to increase it, and credit to decrease it
  • for an income account, you credit to increase it and debit to decrease it

Q55:) List out the Stages of Double Entry System?

  • Recording of transactions in the journal
  • Posting of journal entry in to the respective ledger accounts and then preparing a trial balance
  • Preparing final accounts and closing of books of accounts

Q56). Mention what is the disadvantage of double entry system?
Ans56:The disadvantage of double entry system,

  • If there is any compensatory errors, it is difficult to find out by this system
  • This system needs more clerical labour
  • It is difficult to find the errors if the errors are in the transactions recorded in the books
  • It is not preferable to disclose all the information of a transaction, which is not properly recorded in the journal

Q57). Mention what is General ledger account?
Ans57:The General ledger account is an account where the company records all the information for its various expenses and income types into separate accounts.  Such that all the debits and credits pertaining to that particular type of transaction can be entered in one place and kept balanced.

Q58). What is the general classification of accounts that usually ledger account involve?
Ans58:The general classification of accounts that usually ledger account involves are

  • Assets- Cash, Accounts Receivable
  • Liabilities- Accounts Payable, Loans Payable
  • Stockholders’ equity- Common Stock
  • Operating revenues- Revenues through Sales
  • Operating expenses- Rent Expense, Salaries Expense
  • Non-operating revenues and gains- Investment Income, gain on Disposal of Equipment
  • Non-operating revenues and losses- Interest Expense, Loss on Disposal of Equipment

Q59): Mention what are things will not be included in bank reconciliation statement?
Ans59:In a bank reconciliation statement, following thing can be excluded.

  • Direct payments made by bank not entered in Cash book
  • Cheques deposited but not cleared
  • Cheques dishonoured not recorded in cash book
  • Wrong debits given by bank
  • Bank Charges or Interst debited by bank
  • Banks direct payment not entered in Cash book

Q60). Under the accrual basis of accounting, when revenues are reported in the accounting period?
Ans60:When service or goods have been delivered, then revenues are reported in the accounting period.

Q61).Under what type of account does the unearned revenues fall?
Ans61:The unearned revenues falls under “Liability” account.

Q62). Mention whether the account “Cash” will be credited or debited, when a company pays a bill?
Ans62:The account “Cash” will be credited when a company pays a bill.

Q63). Mention what is assets minus liabilities?
Ans63:Assets minus liabilities is equal to owners’ equity or stockholders equity.

Q64). Entries to revenues accounts such as Service Revenues are usually?
Ans64:Entries to revenues accounts such as Service Revenues usually goes into credit side.

Q65). Explain what is the difference between accumulated depreciation and depreciation expense?
Ans65:The difference between accumulated depreciation and depreciation expense is that

  • Accumulated depreciation: It is the total amount of depreciation that has been taken on a company’s assets up to the date of the balance sheet
  • Depreciation expense: It is the amount of depreciation that is reported on the income statement. Basically, it is the amount that corresponds only to the period of time indicated in the heading of the income statement.

Q66). List out some of the examples for liability accounts?
Ans66:Some of the examples for liability accounts

  • Accounts Payable
  • Accrued Expenses
  • Short-term Loans Payable
  • Unearned or Deferred Revenues
  • Installment Loans Payable
  • Current Portion of Long-term Debt
  • Mortgage Loans Payable

Q67). Explain how you can adjust entries into account?
Ans67:To adjust entries into account, you can sort entries into five categories.

  • Accrued expenses: Expenses have been incurred but the vendors invoices are not generated or processed yet
  • Accrued revenues: Revenues have been earned but the sales invoices are not generated or processed yet
  • Deferred revenues: Money was received in advance of having been paid or earned
  • Deferred expenses: Money was paid for a future expense
  • Depreciation expense: An asset purchased in one period must be allocated to expense in each of the accounting periods of the asset’s useful life

Q68): Explain what a deferred asset is and give an example?
Ans68:A deferred asset refers to a deferred debit or a deferred charge.  An example of a deferred charge is bond issue costs. These costs involves all of the fees or charges that an organization incurs in order to register and issue bonds. This fees are paid in a near time when the bonds are issued but it will not be expensed at that time.

Q69): Mention what is Bank Reconciliation?
Ans69:A bank reconciliation is a process done by a company to ensure that the company’s records (check register, balance sheet, general ledger account, etc.) are correct and that the bank’s records are also correct.

Q70). Mention what is “deposit in transit”?
Ans70:A deposit in transit is a checks and cash that have been received and recorded by an entity, but which have not yet been entered in the records of the bank where the funds are deposited.

Q71): Explain what is an over accrual?

Ans71:An over accrual is a condition where the estimate for an accrual journal entry is too high. This estimate may apply to an accrual of expense or revenue.

Q72). Mention what is account receivable?
Ans72:A short term amounts due from buyers to a seller, who have purchased goods or services from the seller on credit is referred as account receivable.

Q73). Explain what are the activities that includes in Cash Flow Statement?
Ans73:The cash flow statement showcase the cash generated and used during the year or months. Various activities that are involved for the Cash Flow are

  • Operating activities – business activities accounting to cash
  • Investing activities – sale and purchase of equipment or property
  • Financial activities- purchase of stock and own bonds
  • Supplemental information- exchange of significant items that don’t involve cash

Q74). Mention what happens to company’s “Cash Account” if it borrows money from the bank by signing a note payable?
Ans74:Due to double entry, the “cash account” will increase as such the liability account increases.

Q75). Mention which account is responsible for interest payable?
Ans75:Account which is responsible or affected by the interest payable is “Current liability account”

Q76). Mention what is reversing journal entries?
Ans76:Reversing journal entries are entries made at the beginning of an accounting period to cancel out the adjusting journal entries made at the end of the previous accounting period.

Q77).Mention where do generally accruals appear on the balance sheet?
Ans77:Accrued expenses usually tend to be extremely short-term. So you would record them within the “current liabilities section” of the balance sheet.

Q78). List out some of the accrued expenses and the accounts in which you would record them?

  • Wage accrual is entered with a credit to the “wages payable account”
  • Interest accrual is entered with a credit to the “interest payable account”
  • Payroll tax accrual is entered with a credit to the “payroll taxes payable account”

Q79) : Deferred taxation is a part of which equity?
Ans79:Deferred taxation is a part of owner’s equity.

Q80).Mention what does the investment of personal assets by the owner will do?
Ans80:The investment of personal assets by the owner will increase total assets and increase owner’s equity.
Q81). What is the equation for Acid-Test Ratio in accounting?
Ans81:The equation for Acid-Test Ratio in accounting

  • Acid-Test Ratio = (Current assets – Inventory) / Current Liabilities

Q82). List out things that fall under intangible asset?
Ans82:Things that fall under intangible asset are,

  • Patents
  • Copyrights
  • Trademarks
  • Brand names
  • Domain names, and so on.

Q83). Mention what is trial balance in accounting?
Ans83:In accounting, trial balance is an accounting report that lists the balances in each of an organization’s general ledger accounts. This is done at the end of posting journal entry to ensure that there are no posting errors.

Q84). Where a cash discount should be recorded in journal entry?
Ans84:A cash discount should be recorded in journal entry as a reduction of expense in “cash account”.

Q85) Mention why some asset accounts have a credit balance?
Ans85:Some asset accounts have a credit balance due to following reasons,

  • Receiving and posting an amount that was higher than the recorded receivable
  • Expenses occurred faster than the agreed upon prepayments
  • An error caused by posting an amount to a wrong account
  • The amount of checks written exceeded the positive amount in the Cash account
  • Continuing to amortize or depreciate an asset after its balance has reached zero

Q86). Define what is Bad debt expense?
Ans86:A Bad debt expense is the amount of an account receivable that is considered to NOT be collectible.

Q87). Explain what is the Master Account?
Ans87:A Master Account has subsidiary accounts.  A master account receivable could be anything, it could be account receivable for various individual receivable accounts.

Q88) .Mention in which account does the unpresented cheque will get recorded?
Ans88:The unpresented cheque will get recorded as a credit to the cash account in the company’s General ledger.

Q89). What knowledge should financial accountant have?
Ans89:A certified financial accountant should have knowledge about

  • Accounting principles and practices
  • Reporting and analysis of financial data
  • Auditing practices and principles
  • Account management
  • Budgets
  • Software knowledge dealing with Accounting
  • Knowledge of relevant laws, codes and regulations

Q90).What are the three factors that can affect your cash flow and business profitability?
Ans90:The three factors that can affect your cash flow and business profit includes

  • Cash flows from investing activities:It includes shares, bonds, physical property, machineries, etc.
  • Cash flows from operating activities:It does not include cash received from other sources like investments
  • Cash flow from financing activities:It includes any activities that involves dividend payments that the company made to its shareholders, any money that includes stock to the public, any money borrowed from the lender etc. in other words, it is a report that tells the firm about the money borrowed and paid out in order to finance its activities.

Q91). Explain what is accrual accounting?
Ans91:Accrual Accounting is a method for measuring the performance and position of the company by identifying economic events regardless of when cash transaction happened. In this method, revenue is compared with the expenditures, at the time in which the transaction happens rather than when the payment is made.

Q92): Explain the term account payable?
Ans92: Account payable is referred as the amount company owes to its suppliers, its employees, and its partners.  In other words, it is the basic cost levied on the company to run business process that is outstanding.  Account payable for one company may be account receivable for another firm or company.

Q93): Explain the meaning of long-term notes payable is or long term liabilities?
Ans93:Long-term notes payable or liabilities are referred for that loan that are not supposed to due for more than a year.  These are the loans from banks or financial institution that are secured against various assets on the balance sheet, such as inventories.

Q94): Mention what is the difference between depreciation and amortization?
Ans94:Capital expenses are either depreciated or amortized based upon the type of asset.

                            Depreciation                              Amortization
·          Depreciate means to lose value of an asset due to their usage, wear and tear, outdated, etc.

·          Depreciation cost is calculated in terms of tangible assets like furniture, plant & machinery, building, etc.

·          The purpose of calculating depreciation costs recovery

·          The easiest way to calculate depreciation is to know the loss of value of an asset over its life.

·          For example, a car worth $30,000 has estimated the lifetime of 10 years after that it will have no value in the market. The cost or loss in value throughout this 10 years is known as depreciation

·          Various method for depreciation includes straight line depreciation, declining balance method, group depreciation method, unit of time/production depreciation method, etc.

·           Amortize means to write off or pay the debt over a period of time. Amortization can be for loans, or it can be for Intangible assets

·          Amortization cost is calculated in terms of intangible assets like goodwill, trademark, loans, patents, etc.

·          The purpose of calculating amortization is also for cost recovery

·          Amortization calculates the amount spent after the intangible assets throughout the life for that asset

·          For example, Pharmaceutical Company spent $20 million dollars on a drug patent with a useful life of 20 years. The amortization value for that company will be $1 million each year

·          Various method for amortization is negative amortization, zoning amortization, business amortization, etc.

Q95) .Mention what does financial statement of the company includes?
Ans95:Financial statement of the company includes various information like

  • Balance Sheet ( Assets, liabilities, and equity)
  • Income statement ( Profit or Loss statement)
  • Equity statement
  • Cash flow statement

Q96). Explain what is working capital?
Ans96:Working capital is a financial metric that calculates the resources available to the company to finance its day-to-day operations.  It is typically calculated by deducting current liabilities from current assets.

Q97). Explain what is ledger?
Ans97:A ledger can be referred as an accounting book that keeps the record of journal entries in a chronological order to individual accounts.  The process of recording this journal entries is known as posting.

Q98). Mention the types of ledger?
Ans98:There are three types of ledger

  • General ledger
  • Debtors ledger
  • Creditors ledger

Q99).Explain what is GAAP?
Ans99:GAAP means Generally Accepted Accounting Principle; it is a framework of accounting, standards, procedures & rules determined by the professional accounting industry and practiced by publicly traded U.S companies all over the U.S.A.

Q100). Explain what is double-entry accounting? Explain with an example?
Ans100:Double entry accounting is an accounting system that requires recording business transaction or event in at least two accounts.  It is the same concept of accounting, where every debit account should be matched with a credit account.
For example, if a company takes a loan from a bank, it receives cash as an asset but at the same time it creates a liability on a company.  This single entry will affect both accounts, the asset accounts, and the liabilities accounts; such entry is referred as double entry accounting.

Q101).Explain what does the standard journal entry includes?
Ans101: A standard journal entry includes, date of business transaction, name of the accounts affected, amounts to be debited or credited and a brief description of the event.

Q102). Explain what is liabilities and what all does include in current liabilities?
Ans102:Liability can be defined as an obligation towards another company or party.  It may consist of delivering goods, rendering services or paying money. They are the opposite of assets, and it may include

  • Account payable
  • Interest and dividend payable
  • Bonds payable
  • Consumer deposits
  • Reserves for federal taxes
  • Short term loans

Q103). Mention in simple terms what is the difference between Asset, equity, and liabilities?

  • Asset:What financial institute (bank) or people owe you
  • Liabilities:It is something you owe people or organization
  • Equity:It is something you own, for example, the amount of your house loan you paid of.

Q104) Explain Financial Accounting. What are its characteristic features?
Ans104:Financial Accounting is the process in which business transactions are recorded systematically in the various books of accounts maintained by the organization in order to prepare financial statements. These financial statements are basically of two types: First is Profitability Statement or Profit and Loss Account and second is Balance Sheet.
Following are the characteristics features of Financial Accounting:

1) Monetary Transactions: In financial accounting only transactions in monetary terms are considered. Transactions not expressed in monetary terms do not find any place in financial accounting, howsoever important they may be from business point of view.
2) Historical Nature: Financial accounting considers only those transactions which are of historical nature i.e the transaction which have already taken place. No futuristic transactions find any place in financial accounting, howsoever important they may be from business point of view.
3) Legal Requirement: Financial accounting is a legal requirement. It is necessary to maintain the financial accounting and prepare financial statements there from. It is also obligatory to get these financial statements audited.
4) External Use: Financial accounting is for those people who are not part of decision making process regarding the organization like investors, customers, suppliers, financial institutions etc. Thus, it is for external use.
5) Disclosure of Financial Status: It discloses the financial status and financial performance of the business as a whole.
6) Interim Reports: Financial statements which are based on financial accounting are interim reports and cannot be the final ones.
7) Financial Accounting Process: The process of financial accounting gets affected due to the different accounting policies followed by the accountants. These accounting policies differ mainly in two areas: Valuation of inventory and Calculation of depreciation.

Q105)Compare Financial Accounting and Cost Accounting.
1) Financial Accounting protects the interests of the outsiders dealing with the organization e.g shareholders, creditors etc. Whereas reports of Cost Accounting is used for the internal purpose by the management to enable the same in discharging various functions in a proper manner.
2) Maintenance of Financial Accounting records and preparation of financial statements is a legal requirement whereas Cost Accounting is not a legal requirement.
3) Financial Accounting is concerned about the calculation of profits and state of affairs of the organization as whole whereas Cost accounting deals in cost ascertainment and calculation of profitability of the individual products, departments etc.
4) Financial Accounting considers only transactions of historical financial nature whereas Cost Accounting considers not only historical data but also future events.
5) Financial Accounting reports are prepared in the standard formats in accordance with GAAP whereas Cost accounting information is reported in whatever form management wants.

Q106).What are the various systems of Accounting? Explain them.
Ans106: There are two systems of Accounting
1) Cash System of Accounting: This system records only cash receipts and payments. This system assumes that there are no credit transactions. In this system of accounting, expenses are considered only when they are paid and incomes are considered when they are actually received. This system is used by the organizations which are established for non profit purpose. But this system is considered to be defective in nature as it does not show the actual profits earned and the current state of affairs of the organization.
2) Mercantile or Accrual System of Accounting: In this system, expenses and incomes are considered during that period to which they pertain. This system of accounting is considered to be ideal but it may result into unrealized profits which might reflect in the books of the accounts on which the organization have to pay taxes too. All the company forms of organization are legally required to follow Mercantile or Accrual System of Accounting.

Q107).What are the important things to be remembered while preparing a bank reconciliation statement?
Ans107:While preparing a bank reconciliation statement following important points need to be remembered

  • Bank Reconciliation Statement is prepared either by starting with the Bank pass book balance or Cash book balance.
  • If the balance of the Cash book is taken as a starting point then Cash book balance is to be adjusted in accordance with the entries passed in the Bank pass book and vice versa. For example:If the balance is taken as per the Cash book then the following items will be added:
  • Cheques issued but not presented for payment;
  • Amount credited in Passbook but not in Cash book;
  • Deposits made in the bank directly;
  • Wrong credits given by bank;
  • Interest credited in the Passbook.

The following items will be subtracted

  • Cheques deposited but not cleared
  • Interest/Bank Charges debited by bank
  • Direct payments made by bank not entered in Cash book
  • Cheques dishonoured not recorded in cash book
  • Wrong debits given by bank
  • If it is prepared with the Bank balance as per the bank passbook, then the above procedure will be reversed i.e the items will be added to the pass book which were deducted from the cash book balance and those items will be deducted from the bank pass book balance which were added to the cash book balance.

Q108).What is cost accountancy? What are the objects of Cost Accountancy?
Ans108:Cost accountancy is the application of costing and cost accounting principles, methods and techniques to the science, art and practice of cost control and the ascertainment of profitability as well as the presentation of information for the purpose of managerial decision making.
Following are the objects of Cost Accountancy
o    Ascertainment of Cost and Profitability
o    Determining Selling Price
o    Facilitating Cost Control
o    Presentation of information for effective managerial decision
o    Provide basis for operating policy
o    Facilitating preparation of financial or other statements

Q109).What is capitalization? What is its importance?
Ans109:Capitalization is a term which has different meanings in both financial and accounting context. Capitalization in accounting means the cost to buy an asset which is included in the price of the asset whereas in financial terms it is the cost which is required to buy an asset which includes price of a particular asset and it also include the retained earnings of a company with stock debt and long term debt. There are two kinds of capitalization which are called as Over-capitalization and another is called as Under-capitalization. Capitalization is very import aspect in determining the value of the company in the market which is based on the economic structure of the company. This aspect depends on the previous records and economics of the company. This also shows a particular behaviour of the companies’ structure and allows them to create a plan to do the marketing.

Q110).What in your opinion makes a good financial model?
Ans110: It’s important to have strong financial modeling fundamentals.  Wherever possible model assumptions (inputs) should be in one place and distinctly colored (typically bank models use blue font for model inputs).  Good Excel models also make it easy for users to understand how inputs are translated into outputs.  Good Excel models also include error checks to ensure the model is working correctly (e.g. the balance sheet balances, the cash flow calculations are correct, etc.).  The contain enough detail, but not too much, and they have a dashboard that clearly displays the key outputs with charts and graphs.  For more, check out our complete guide to financial modeling.

​Q111).If it were up to you, what would the budgeting process look like?
Ans111: This is somewhat subjective.  In my opinion a good budget is one that has buy-in from all departments in the company, is realistic yet strives for achievement, has been risk adjusted to allow for a margin of error, and is tied in to the the company’s overall strategic plan.  In order to achieve this the budget needs to be an iterative process that includes all departments.  It can be zero-based (starting from scratch each time), or building off the previous year, but it depends what type of business you’re running as to which is better.  It’s important to have a good budgeting / planning calendar that everyone can follow.  This is an important part of how to be a world class financial analyst.

​Q112). Walk me through the 3 financial statements.
Ans112: The balance sheet shows a company’s assets, its liabilities and shareholders’ equity.  The income statement outlines the company’s revenues and expenses.  The cash flow statement shows the cash flows from operating, investing and financing activities.

Q113).If I had only 1 statement and wanted to review the overall health of a company, which statement would I use and why?
Ans113: Cash is king. The cash flow statement gives a true picture of how much cash the company is generating.  Ironically, it often gets the least attention.  You can probably pick a different answer for this question, but you have to have a good justification (i.e. the balance sheet because assets are the true drier of cash flow etc etc.)

​Q114).When should a company consider issuing debt instead of equity?

Basic Accounting Terms:

  3. Concepts of accounting:

Separate entity concept

Going concern concept

Money measurement concept

Cost concept

Dual aspect concept

Accounting period concept

Periodic matching of costs and revenue concept

Realization concept.

4 Conventions of accounting:

  1. Conservatism
  2. Full disclosure
  3. Consistency
  4. Materiality
  1. Systems of book keeping:

single entry system

double entry system

  1. Systems of accounting:
  1. Cash system accounting
  2. Mercantile system of accounting.
  3. Principles of accounting:
  4. Personal a/c: Debit the receiver

Credit the giver

Real a/c: Debit what comes in

Credit what goes out

Nominal a/c: Debit all expenses and losses

Credit all gains and incomes

  12. Matching concept: Matching means requires proper matching of expense with the revenue.
  21. Intanglbe Assets: Intangible assets mean the assets which is not having the physical appearance. And it’s have the real value, it shown on the assets side of the balance sheet.
  26. Amortization: The process of writing of intangible assets is term as amortization.


  2. Pref.shares: Those shares which are carrying the pref.rights are called pref. shares Pref.rights in respect of fixed dividend. Pref.right to repayment of capital in the event of company winding up.
  14. Capital receipts: Capital receipts may be defined as “non-recurring receipts from the owner of the business or lender of the money crating a liability to either of them.
  15. Revenue receipts: Revenue receipts may defined as “A recurring receipts against sale of goods in the normal course of business and which generally the result of the trading activities”.
  29. Objectives of financial management: financial management having two objectives that Is:
  36. Financial break-even point: It denotes the level at which a firm’s EBIT is just sufficient to cover interest and preference dividend.
  50. Venture capital: It refers to the financing of high-risk ventures promoted by new qualified ntrepreneurs who require funds to give shape to their ideas.
  60. Depreciation on fixed assets
    Preliminary expenses or goodwill written off, Loss on sale of fixed assets Deduct the following items, as they do not increase the funds:Profit on sale of fixed assets, profit on revaluation Of fixed assets
    External sources: (a) Funds from long-term loans (b)Sale of fixed assets (c) Funds from increase in share capital
  74. Materiality concepts: – It is a one of the accounting principle, as per only important information will be taken, and UN important information will be ignored in the preparation of the financial statement.
  75. Matching concepts: – The cost or expenses of a business of a particular period are compared with the revenue of the period in order to ascertain the net profit and loss.
  76. Accrual concept: – The profit arises only when there is an increase in owners capital, which is a result of excess of revenue over expenses and loss.
  82. Opportunity cost: The cost associated with not doing something.
  90. Cash dividend: The payment of dividend in cash
  99. Appropriation: It is application of profit towards Reserves and Dividends.
  103. Share premium: The excess of issue of price of shares over their face value. It will be showed with the allotment entry in the journal; it will be adjusted in the balance sheet on the liabilities side under the head of “reserves & surplus”.
  114. Opening Stock: The term ‘opening stock’ means goods lying unsold with the businessman in the beginning of the accounting year. This is shown on the debit side of the trading account.
  115. Closing Stock: The term ‘Closing Stock’ includes goods lying unsold with the businessman at the end of the accounting year. The amount of closing stock is shown on the credit side of the trading account and as an asset in the balance sheet.
  116. Valuation of closing stock: The closing stock is valued on the basis of “Cost or Market prices whichever is less” principle.
  124. Capital redemption reserve: A reserve created on redemption of the average cost: – the cost of an item at a point of time as determined by applying an average of the cost of all items of the same nature over a period. When weights are also applied in the computation it is termed as weight average cost.
  127. Difference between the Funds flow and Income statement:
    A funds flow statement deals with the financial resource required for running the business activities. It explains how were the funds obtained and how were they used, whereas an income statement discloses the results of the business activities, i.e., how much has been earned and how it has been spent. A funds flow statement matches the “funds raised” and “funds applied” during a particular period. The source and application of funds may be of capital as well as of revenue nature. An income statement matches the incomes of a period with the expenditure of that period, which are both of a revenue nature.
  136. Goodwill: The present value of firm’s anticipated excess earnings.
  142. Cost: The amount of expenditure incurred on to a given thing.
  161. European option: It is the option at exercised only on expiration date itself.
  162. Basis: Basis means future price minus spot price.
  165. Maintenance margin: This is somewhat lower than initial margin.
  167. Baskets: basket options are options on portfolio of underlying asset.
  170. Hedging: Hedging means minimize the risk.
  186. Types of equity funds: Simple equity funds Primary market funds Sectoral funds Index funds
  197. Custodians: Custodians are responsible for the securities held in the mutual fund’s portfolio.
  212. Closing stock: The term closing stock means goods lying unsold with the
  213. Gross profit ratio: it indicates the efficiency of the production/trading operations.Formula :                          Gross profit——————-X100Net sales
  214. Net profit ratio: it indicates net margin on salesFormula:                      Net profit————— X 100Net sales
  215. Return on share holders’ funds: it indicates measures earning power of equity capital.Formula:Profits available for Equity shareholders———————————————–X 100Average Equity Shareholders Funds
  216. Earning per Equity share (EPS): it shows the amount of earnings attributable to each equity share.Formula:Profits available for Equity shareholders———————————————-Number of Equity shares
  217. Dividend yield ratio: it shows the rate of return to shareholders in the form of dividends based in the market price of the shareFormula:Dividend per share—————————- X100Market price per share
  218. Price earnings ratio: it a measure for determining the value of a share. May also be used to measure the rate of return expected by investors.Formula:                            Market price of share (MPS)————————————X 100Earnings per share (EPS)
  219. Current ratio: it measures short-term debt paying ability.Formula:Current Assets————————Current Liabilities
  220. Debt-Equity Ratio: it indicates the percentage of funds being financed through borrowings; a measure of the extent of trading on equity.Formula:                            Total Long-term Debt—————————Shareholders’ funds
  221. Fixed Assets ratio: This ratio explains whether the firm has raised adequate long-term funds to meet its fixed assets requirements.Formula:                                Fixed Assets——————-Long-term Funds
  222. Quick Ratio: The ratio termed as ‘liquidity ratio’. The ratio is ascertained y comparing the liquid assets to current liabilities.Formula:Liquid Assets————————Current Liabilities
  223. Stock turnover Ratio: The ratio indicates whether investment in inventory in efficiently used or not. It, therefore explains whether investment in inventory within proper limits or not.Formula:                           cost of goods sold——————————Average stock
  224. Debtors Turnover Ratio: The ratio the better it is, since it would indicate that debts are being collected more promptly. The ration helps in cash budgeting since the flow of cash from customers can be worked out on the basis of sales.Formula:                            Credit sales—————————-Average Accounts Receivable
  225. Creditors Turnover Ratio: It indicates the speed with which the payments for credit purchases are made to the creditors.Formula:                     Credit Purchases———————–Average Accounts Payable
  226. Working capital turnover ratio: It is also known as Working Capital Leverage Ratio. This ratio indicates whether or not working capital has been effectively utilized in making sales.Formula:                           Net Sales—————————-Working Capital
  227. Fixed Assets Turnover ratio: This ratio indicates the extent to which the investments in fixed assets contribute towards sales.Formula:                            Net Sales————————–Fixed Assets
  228. Pay-outs Ratio: This ratio indicates what proportion of earning per share has been used for paying dividend.Formula:                            Dividend per Equity Share——————————————–X100Earning per Equity share
  229. Overall Profitability Ratio: It is also called as “Return on Investment” (ROI) or Return on Capital Employed (ROCE). It indicates the percentage of return on the total capital employed in the business.Formula:                      Operating profit————————X 100Capital employedThe term capital employed has been given different meanings a.sum total of all assets Whether fixed or current b.sum total of fixed assets, c.sum total of long-term funds employed In the business, i.e., share capital +reserves &surplus +long term loans – (non business assets + fictitious assets). Operating profit means ‘profit before interest and tax’
  230. Fixed Interest Cover ratio: The ratio is very important from the lender’s point of view. It indicates whether the business would earn sufficient profits to pay periodically the interest charges.Formula:                           Income before interest and Tax—————————————Interest Charges
  231. Fixed Dividend Cover ratio: This ratio is important for preference shareholders entitled to get dividend at a fixed rate in priority to other shareholders.Formula:                     Net Profit after Interest and Tax——————————————Preference Dividend
  232. Debt Service Coverage ratio: This ratio is explained ability of a company to make payment of principal amounts also on time.Formula:                     Net profit before interest and tax———————————————– 1-Tax rateInterest + Principal payment installment
  233. Proprietary ratio: It is a variant of debt-equity ratio . It establishes relationship between the proprietor’s funds and the total tangible assets.Formula:                     Shareholders funds——————————Total tangible assets
  234. Concepts of accounting:Business entity concepts: – According to this concept, the business is treated as a separate entity distinct from its owners and others.Going concern concept :- According to this concept, it is assumed that a business has a reasonable expectation of continuing business at a profit for an indefinite period of time.Money measurement concept :- This concept says that the accounting records only those transactions which can be expressed in terms of money only.Cost concept: – According to this concept, an asset is recorded in the books at the price paid to acquire it and that this cost is the basis for all subsequent accounting for the asset.Dual aspect concept: – In every transaction, there will be two aspects – the receiving aspect and the giving aspect; both are recorded by debiting one accounts and crediting another account. This is called double entry.Accounting period concept: – It means the final accounts must be prepared on a periodic basis. Normally accounting period adopted is one year, more than this period reduces the utility of accounting data.Realization concept: – According to this concepts, revenue is considered as being earned on the data which it is realised, i.e., the date when the property in goods passes the buyer and he become legally liable to pay.

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