Accounting Interview Questions to Ask in 2024

Asking the right accounting interview questions during the recruitment methods is crucial for several reasons. Firstly, it allows employers to assess candidates’ skills and knowledge in accounting principles, practices, and regulations, providing insights into their technical proficiency and ability to handle various tasks. 

Secondly, questions about past experiences and accomplishments help determine candidates’ level of experience and problem-solving abilities in accounting roles. This ensures that they have the necessary expertise to handle the responsibilities of the position. 

Thirdly, inquiring about regulatory frameworks and compliance matters helps ensure that candidates are well-versed in financial reporting requirements, minimizing the risk of legal issues. Additionally, asking candidates to solve accounting problems or analyze financial statements evaluates their analytical skills and attention to detail, which are essential for effective financial management.

30 Accounting Interview Questions and Answers

1. What is the Purpose of an Income Statement?

The purpose of an income statement, also known as a profit and loss statement (P&L), is to provide a summary of a company’s revenues, expenses, gains, and losses over a specific period of time, typically monthly, quarterly, or annually. It helps stakeholders, such as investors, creditors, and management understand the profitability of the business and assess its financial performance. 

By detailing the company’s revenues and expenses, the income statement shows whether the company has generated a profit or incurred a loss during the reporting period. It is an essential financial document for decision-making, financial analysis, and assessment of the overall health and viability of a business.

2. How Do You Categorize Assets and Liabilities?

Sure, here’s a concise breakdown:

Assets are resources owned by a company and are categorized as:

Current Assets: Expected to be used up or converted into cash within one year.

Non-current Assets: Expected to provide economic benefits beyond one year.

Liabilities are obligations owed by a company and are categorized as:

Current Liabilities: Due within one year.

Non-current Liabilities: Due beyond one year.

3. What is the Difference Between Revenue and Profit?

Revenue and profit are both important financial metrics, but they represent different aspects of a company’s financial performance:

Revenue, also known as sales or turnover, refers to the total amount of money generated by a company from its primary business activities. It represents the income earned by a company through selling goods or services to its customers. Revenue is the top line of the income statement and does not account for expenses incurred in generating that income.

Profit, on the other hand, is the financial gain or benefit obtained after deducting all expenses, including the cost of goods sold, operating expenses, taxes, and interest, from the total revenue. Profit is the bottom line of the income statement and represents the amount of money that remains after all expenses have been subtracted from revenue. It indicates the profitability of a company and its ability to generate earnings from its operations.

4. What Does “Balance” Mean in a Balance Sheet?

In a balance sheet, “balance” refers to the equality between a company’s total assets and its total liabilities and equity. The balance sheet is structured based on the accounting equation:

Assets = Liabilities + Equity

This equation must always hold, ensuring that the resources (assets) owned by the company are funded either by borrowing (liabilities) or by the owners’ investments (equity).

5. Can You Give an Example of an Expense?

Here are a few examples of common business expenses:

1. Salaries and wages

Payments made to employees for their work.

2. Rent

Cost of leasing or renting office space, storefronts, or manufacturing facilities.

3. Utilities

Expenses related to electricity, water, gas, internet, and other essential services.

4. Supplies

Costs associated with purchasing office supplies, raw materials, or inventory for resale.

5. Marketing and advertising

Expenditures on promotional activities, such as advertising campaigns, social media marketing, and sponsorships.

6. Insurance

Payments made for business insurance coverage, including property insurance, liability insurance, and workers’ compensation insurance.

7. Depreciation

Allocation of the cost of assets over their useful lives, representing the wear and tear or obsolescence of tangible assets such as equipment, machinery, or vehicles.

8. Repairs and maintenance

Expenses for repairing and maintaining equipment, machinery, vehicles, or facilities.

6. What is the Formula for Calculating Net Income?

The formula for calculating net income is:

Net Income = Total Revenue – Total Expenses

In other words, net income represents the amount of profit or earnings that a company has generated after deducting all expenses, including the cost of goods sold, operating expenses, taxes, interest, and any other relevant expenses, from its total revenue. Net income is often referred to as the “bottom line” of the income statement, as it indicates the overall profitability of the company.

7. What is the Difference Between a Debit and a Credit?

In accounting, the terms “debit” and “credit” are foundational concepts used to record financial transactions accurately and maintain the balance of a company’s accounts. A debit entry represents an increase in assets or expenses or a decrease in liabilities or equity and is pre-recorded on the left side of an account ledger. 

On the other hand, a credit entry signifies a decrease in assets or expenses or an increase in liabilities or equity and is recorded on the right side of an account ledger.

8. How Do You Calculate Total Assets?

Total assets represent the sum of all resources owned or controlled by a company, which provide future economic benefits. To calculate total assets, you need to aggregate all the individual asset accounts listed on a company’s balance sheet. These accounts are typically categorized as current assets and non-current assets. Here’s the formula for calculating total assets:

Total Assets = Current Assets + Non-current Assets

9. What is the Purpose of a Cash Flow Statement?

The purpose of a cash flow statement is to track and report the cash inflows and outflows of a company over a specific period. It categorizes cash flows into three main activities: operating, investing, and financing. Operating activities reflect cash generated from core business operations, investing activities involve cash used for investments in assets, and financing activities encompass cash transactions related to financing sources and capital structure. This statement provides valuable insights into a company’s liquidity, financial health, and ability to meet its obligations.

10. How Do You Calculate Gross Profit?

Gross profit is calculated by subtracting the cost of goods sold (COGS) from total revenue. The formula for calculating gross profit is:

Gross Profit = Total Revenue – Cost of Goods Sold (COGS)

11. Can You Explain the Concept of Accounts Payable?

Accounts payable (AP) is the amount of money a company owes to its suppliers or vendors for goods and services purchased on credit. It’s a liability recorded in the company’s books and represents short-term obligations to be paid within a specified period.  

12. What is Depreciation?

Depreciation is an accounting method used to allocate the cost of tangible assets over their useful lives. Tangible assets, such as buildings, machinery, equipment, vehicles, and furniture, lose value over time due to wear and tear, obsolescence, or usage. Depreciation reflects this decline in value by spreading the cost of the asset over its estimated useful life.

13. How Do You Calculate the Owner’s Equity?

Owner’s equity, also known as shareholders’ equity or owner’s capital, represents the owner’s residual interest in the assets of a business after deducting its liabilities. It essentially reflects the portion of the business’s assets that belong to the owner(s) or shareholders.

Owner’s equity can be calculated using the following formula:

Owner’s Equity = Total Assets – Total Liabilities

14. What Does ROI Stand for, and Why is it Important?

ROI stands for Return on Investment. It’s a financial metric used to evaluate the profitability or efficiency of an investment relative to its cost. ROI is calculated by dividing the net profit or gain generated by the investment by the initial cost or investment amount and expressing the result as a percentage.

ROI = (Net Profit / Initial Investment) × 100%

ROI is important because it helps investors, businesses, and decision-makers assess the potential benefits and risks associated with an investment. It provides a clear measure of the return earned on an investment relative to its cost, allowing for comparisons between different investment opportunities.

15. What is the Purpose of a Trial Balance?

The purpose of a trial balance is to ensure the accuracy of a company’s accounting records by verifying that the total debits equal the total credits after all transactions have been recorded. 

It lists all the general ledger account balances in two columns: debit balances and credit balances. By comparing the total of each column, accountants can identify any discrepancies or errors in the recording of transactions. While a trial balance doesn’t guarantee the absence of errors, it serves as an important tool for detecting mistakes before financial statements are prepared.

16. How Do You Calculate Total Liabilities?

Total liabilities are calculated by adding up all of the debts and obligations that a company owes. This includes both current liabilities, which are debts due within one year, and long-term liabilities, which are debts due after one year. Here’s the general formula:

Total Liabilities = Current Liabilities + Long-Term Liabilities

17. What is the Difference Between Fixed and Variable Costs?

Fixed costs remain constant regardless of production levels, like rent and salaries. Variable costs fluctuate with production changes, such as raw materials. Fixed costs are incurred irrespective of output, while variable costs directly correlate with production volume. Understanding this difference helps businesses analyze cost structures and make informed decisions about production levels and pricing strategies.

18. How Do You Record a Sale in Accounting?

Recording a sale in accounting involves increasing the revenue account and a corresponding asset account, such as cash or accounts receivable. For example, in a cash sale, the journal entry would debit the cash account and credit the revenue account. In a credit sale, accounts receivable would be credited instead of cash. This process accurately reflects the company’s financial transactions and performance.

19. What is the Difference Between a Financial Statement and a Bank Statement?

Financial statements provide a comprehensive overview of a company’s financial performance and position, including the balance sheet, income statement, and cash flow statement. They are prepared by the company’s accounting department and reflect its operations over a specific period.

In contrast, a bank statement is a record provided by a bank that summarizes the transactions in a bank account over a particular period. It includes details such as deposits, withdrawals, checks cleared, and fees charged by the bank.

20. What is the Purpose of a Journal Entry?

The purpose of a journal entry is to record financial transactions systematically in chronological order. Each entry documents the specific details of a transaction, including the accounts affected, the amounts involved, and the date of the transaction. Journal entries serve as the foundation for posting to the general ledger, ensuring accurate and organized financial records for analysis, reporting, and decision-making.

21. Can You Explain the Concept of a Ledger?

A ledger is a fundamental accounting tool used to record and summarize financial transactions. It serves as a central repository where all the financial activities of a business are organized and classified into individual accounts. Each account within the ledger represents a specific aspect of the company’s financial position, such as assets, liabilities, equity, revenue, and expenses.

22. How Do You Calculate the Current Ratio?

The current ratio is a financial metric used to assess a company’s liquidity and short-term financial health. It is calculated by dividing the total current assets by the total current liabilities. The formula is as follows:

Current Ratio = Total Current Assets/Total Current Liabilities

23. What is the Difference Between Cash Flow and Profit?

The key difference between cash flow and profit lies in their focus and timing. Profit refers to the difference between revenue and expenses over a specific period, reflecting the net income earned by a company. It is calculated using accrual accounting principles, which recognize revenue and expenses when they are incurred, regardless of when cash changes hands.

On the other hand, cash flow refers to the actual movement of cash in and out of a business during a given period. It tracks the inflows and outflows of cash from operating activities, investing activities, and financing activities. Cash flow provides a more immediate and tangible measure of a company’s liquidity and ability to meet its short-term obligations.

24. How Do You Calculate the Profit Margin?

The profit margin is a financial metric that measures the percentage of revenue that translates into profit after accounting for all expenses. It is calculated by dividing net income (profit) by total revenue and expressing the result as a percentage. The formula for calculating the profit margin is as follows:

Profit Margin=(Net Income/Total Revenue)×100%

25. Explain the Concept of Accounts Receivable.

Accounts receivable refers to the money owed to a business by its customers for goods or services delivered but not yet paid for. It represents a current asset on the balance sheet, as it is expected to be converted into cash within a short period, typically within a year. Accounts receivable arise from credit sales, where the customer is given a specified period to pay.

26. What are Bad Debts?

Bad debts are accounts receivable that are considered uncollectible and are written off as a loss. This happens when it becomes evident that a customer will not be able to pay the amount owed, due to reasons such as bankruptcy or financial difficulties. Businesses account for bad debts to ensure that their financial statements reflect a more accurate picture of their financial health.

27. What is the Meaning of a Debit Note and credit note?

Debit Note: A debit note is a document issued by a buyer to a seller as a means of formally requesting a return of funds or notifying the seller of a debit made in the seller’s account. 

Credit Note: A credit note is a document issued by a seller to a buyer acknowledging that a particular amount has been credited to the buyer’s account. 

28. What are Outstanding Expenses and Prepaid Expenses?

Outstanding Expenses: Outstanding expenses are costs that have been incurred but not yet paid by the end of an accounting period. These are also known as accrued expenses. 

Prepaid Expenses: Prepaid expenses are payments made in advance for goods or services to be received in the future. They are considered current assets because they represent services or benefits that will be consumed within the business cycle.

29. What is Accrued Income? 

Accrued income refers to earnings that have been recognized but not yet received in cash. This income is recorded in the books at the end of an accounting period, even though the cash has not yet been received.

30. What is Income Received in Advance? 

Income Received in Advance is money received by a business for services or goods that are to be provided in the future. This is also known as unearned income. It represents a liability for the business because it must deliver the goods or services in the future.

Conclusion 

In 2024, the importance of asking the right accounting interview questions remains paramount. As the business landscape evolves and financial regulations continue to change, employers must ensure they select candidates equipped with the necessary skills, knowledge, and adaptability to navigate these complexities. Thus the help of accounting interview software the recruiters set accounting interview questions to assess candidates’ technical proficiency, problem-solving abilities, compliance knowledge, and cultural fit.