Q1. What is the difference between accounts receivable (AR) and accounts payable (AP)?
This is one of many elementary accounting interview questions you can use to find out more about the general accounting knowledge of entry-level job candidates for bookkeeping or accounting clerk openings. Their responses, both verbal and non-verbal, will reveal whether they understand accounting fundamentals.
Q2. What is working capital?
Working capital is typically defined as current assets less current liabilities. In banking, working capital is normally defined more narrowly as current assets (excluding cash) less current liabilities (excluding interest-bearing debt).
Q3. What happens on the income statement if inventory goes up by $10?
Nothing. This is a trick question. The only impact will be on the balance sheet and cash flow statement
Q4. When do you capitalize rather than expense a purchase?
If the purchase will be used in the business for more than one year, it is capitalized and depreciated.
Q5. What are pre-requisites of revenue recognition?
Revenue can be recognized only when the following criteria are fulfilled:
- There is an arrangement with the buyer indicating that the sale is supposed to take place. This arrangement can be in the form of a legal agreement, a purchase order or an email confirming that the buyer is placing an order.
- The delivery of services or products is completed. Revenue cannot be recognized for not delivered goods or services.
- The price of the services or products can be determined with certainty. The arrangement mentioned in point (a) will generally mention the price of the products/services. If not then the market price can be used as well.
- Revenue collection can be fairly determined. For clients with whom business is done in the past, data analysis of previous receivables can be used to determine timely receivable of collections. For new clients, credit ratings, market reputation, references can be checked to determine the probability of collection.
Q6. What is the significance of reconciliation in accounting?
Reconciliation is a must when it comes to accounting. One set of record should be matched/reconciled with another so that records are updated on timely basis. It also helps to verify if any incorrect entry/amount is posted in the books. Some basic types of reconciliations which are very essential are bank reconciliations (bank ledger in our books vis-a-vis bank statement), vendor reconciliation (vendor ledger in our books vis-a-vis our ledger in vendor’s books), inter-company reconciliations, etc. Internal reconciliations should also be done. These include quantity reconciliation of closing stock, cost of goods sold reconciliations, etc.
Q7. What does having negative working capital mean?
Negative working capital is common in some industries such as grocery retail and the restaurant business. For a grocery store, customers pay upfront, inventory moves relatively quickly but suppliers often give 30 days (or more) credit. This means that the company receives cash from customers before it needs the cash to pay suppliers. Negative working capital is a sign of efficiency in businesses with low inventory and accounts receivable. In other industries, negative working capital may signal a company is facing financial trouble.
Q8. How do you record PPE and why is this important?
There are essentially 4 areas to consider when accounting for PP&E on the balance sheet: initial purchase, depreciation, additions (capital expenditures), and dispositions. In addition to these four, you may also have to consider revaluation. For many businesses, PP&E is the main capital asset that generates revenue, profitability and cash flow.
Q9. Which accounting software / ERP, according to you, should be used for maintaining the Accounts of an MNC?
Accounting software sets the foundation of accounting in any organization and it is therefore very important to choose software which suits the need of the organization.
SAP is not just an accounting software, it is more of an ERP and I would recommend it to the management if I were to be appointed as the CFO of a 100 million dollar MNC. It has adequate controls, multiple modules which have access limitation, various reports can be extracted and customization is also possible. However, the cost of SAP is on the higher side, it is the trade-off between risk and return which justifies the high cost of the ERP given the volume and scale of the business.
Q10. Describe the advantages and disadvantages of different accounting packages you have used in your most recent accountant jobs.
Be prepared to share specific examples of the pros and cons of the accounting software you have used.
Q11. What methods have you used for estimating bad debt?
This accounting interview question can open a conversation about the ways the applicant has approached this routine process with previous employers. This line of inquiry allows recent grads to apply theoretical knowledge in venturing educated guesses. The answer will reveal the level of understanding of the methods most commonly used and could open a dialogue about how your company handles this.
Q12. Which enterprise resource planning (ERP) systems have you used?
Most professionals, especially those with experience working for medium to large organizations, should have an answer for this. A response might include any of the following: Hyperion, Microsoft Dynamics GP or Oracle Enterprise Manager. For entry-level candidates, you might turn this into a discussion of accounting certifications and future training possibilities. For example, ask which ERP systems they would like to master. Discussion of these tools, how the applicants learned them and put them to work, and what applications your company uses will reveal how much, if any, training might be needed.
Q13. How does an inventory write-down affect the three statements?
On the balance sheet the asset account of Inventory is reduced by the amount of the write-down, and so is shareholders’ equity. The income statement is hit with an expense in either COGS or a separate line item for the amount of the write-down, reducing net income. On the cash flow statement, the write-down is added back to CFO as it’s a non-cash expense but must not be double counted in the changes of non-cash working capital.
Q14. What is your experience with developing business metrics?
Though somewhat general, this finance interview question can elicit answers useful in evaluating entry-level business or financial analyst candidates all the way up to mid-career professionals who aspire to roles that come with budget and staff oversight responsibilities.
Q15. If a company has three bank accounts for processing payments, what is the minimum number of ledgers it needs?
Use this as a starting point in the interview to explore a candidate’s knowledge of ledgers. Observe the interviewee’s initial reaction and use it as a leaping off point for further discussion of skills related to the opening you are trying to fill. Expect the response to reveal the extent to which the applicant has thought through how accounts relate to lines of business and generally accepted accounting principles.
Q16. How important is documentation when it comes to accounting?
I believe that the accounting team of any company has a responsibility of presenting a true and fair view to the shareholders and the management of the company. Accounting team is like the watchdog of the organization. This is why documentation becomes very important in accounting. Appropriate documentation needs to be checked and maintained so that a proper audit trail is maintained and justified as and when required.
Q17. How do you ensure that you do not forget details and ensure accuracy when you prepare monthly journal entries, record transactions, etc.?
Almost everybody forgets small details sometimes – except accountants, who can’t afford to. What do you do to make sure you don’t forget or unintentionally alter important numbers? If you happen to be a savant who doesn’t need any special method, be sure to explain this so that your interviewer knows you are not simply trying to make yourself look good.
Q18. If you were CFO of our company, what would keep you up at night?
Step back and give a high-level overview of the company’s current financial position, or companies in that industry in general. Highlight something on each of the three statements. Income statement: growth, margins, profitability. Balance sheet: liquidity, capital assets, credit metrics, liquidity ratios. Cash flow statement: short-term and long-term cash flow profile, any need to raise money or return capital to shareholders.