UAE ACCOUNTING

INTERVIEW
QUESTIONS & ANSWERS
1. Account Balance - The total amount of 16. Depreciation - The allocation of the 31. Overhead - Indirect costs not directly
money in an account at a given time. cost of a tangible asset over its useful tied to the production of goods or
life. services.
2. Accounts Payable - Money owed by a
business to its creditors for goods or 17. Double Entry Accounting - A system 32. Payroll - refers to the process of
services. in which every transaction has equal and managing employee compensation,
opposite effects on two or more including calculating wages or salaries,
3. Accounts Receivable - Money owed to
accounts. applying deductions like taxes and
a business by its customers for goods or
benefits, and ensuring timely payments.
services provided. 18. Equity - The ownership interest in a
It's crucial to maintain accuracy and
business, often represented as
4. Accrual Basis Accounting - A method comply with tax regulations to avoid
shareholders' equity.
of accounting that records transactions errors and legal issues.
when they are earned or incurred, not 19. Expense - The cost incurred to
33. Profit and Loss Statement - Another
when cash changes hands. generate revenue in a business.
term for the income statement.
5. Amortization - The gradual reduction 20. Financial Statement - Reports that
34. Revenue - The income earned from
of an intangible asset's value over time. summarize a company's financial
sales of goods or services.
activities, including the income
6. Asset - Anything of value owned by a
statement, balance sheet, and cash flow 35. Trial Balance - A list of all account
business, such as cash, inventory, or
statement. balances to check for errors before
property.
preparing financial statements.
21. Fixed Asset - A long-term asset, such
7. Audit - A systematic examination of a
as machinery or property, used in a 36. Accrued Expense - An expense that
company's financial records and
business. has been incurred but not yet paid.
processes.
22. General Ledger - A master 37. Asset Turnover Ratio - A measure of
8. Balance Sheet - A financial statement
accounting record that contains all the how efficiently a company uses its assets
that shows a company's assets,
accounts used by a company. to generate revenue.
liabilities, and equity at a specific point
in time. 23. Income Statement - A financial 38. Bad Debt is the amount that a
statement that shows a company's business is unable to collect from a
9. Bank Reconciliation - The process of
revenues, expenses, and profit or loss customer due to non-payment. It is
matching a company's records with
over a specific period. considered a loss and is written off in
those of its bank to ensure accuracy.
the books when the debt is deemed
24. Internal Control - Policies and
10. Bookkeeping - The process of irrecoverable
procedures implemented to safeguard a
recording financial transactions.
company's assets and ensure accuracy in 39. Budget - A financial plan that
11. Capital Expenditure - Money spent financial reporting. outlines expected income and expenses.
on acquiring or improving long-term
25. Journal Entry - The record of a 40. Cash Accounting - A method of
assets.
financial transaction before it is posted accounting that records transactions
12. Cash Flow Statement - A financial to the general ledger. when cash is received or paid.
statement that shows the movement of
26. Liabilities - Debts or obligations owed 41. Chart of Accounts - is a complete list
cash in and out of a business.
by a business to external parties. of all the accounts used by a company to
13. Cost of sales also known as Cost of record its financial transactions. It
27. Liquidation - The process of selling
Goods Sold (COGS) - The direct costs includes assets, liabilities, equity,
off a company's assets to pay its debts.
associated with producing goods or revenues, and expenses, each with a
services. Companies use this 28. Long-Term Liabilities - Debts or unique account number for easy
measurement to calculate their gross obligations that are not due within the identification.
margin current year.
42. Contingent Liability - A potential
14. Credit - An entry that increases 29. Net Income - The profit earned by a obligation that depends on future
liability or equity accounts and company after deducting all expenses events.
decreases asset accounts. and taxes.
43. Cost Accounting - A branch of
15. Debit - An entry that increases asset 30. Operating Income - A company's accounting focused on tracking and
accounts and decreases liability or profit from its core business activities. controlling the costs of producing goods
equity accounts. or services.
44. Credit Memo - A document issued to 60. Retained Earnings - Profits that are 75. Gross Margin - The difference
reduce or cancel an invoice. reinvested in the business rather than between revenue and the cost of goods
distributed to shareholders. sold, expressed as a percentage.
45. Debit Memo - A document issued to
increase the amount of an invoice. 61. Cash flow statement - It is a financial 76. Income Tax Expense - The amount of
statement that shows how cash comes income tax owed by a company in a
46. Dividend - A distribution of profits to
in and goes out of a business during a given period.
shareholders.
specific period. It includes cash from
77. Joint Venture - A business
47. FIFO (First-In, First-Out) - An operating, investing, and financing
arrangement where two or more entities
inventory valuation method where the activities
collaborate for a specific project.
oldest items are sold first.
62. Tax Deduction - An expense that
78. Liquidity - The ability of a company
48. GAAP stands for Generally Accepted reduces taxable income.
to meet its short-term obligations with
Accounting Principles. It is a set of
63. Unearned Revenue - Money received its current assets.
standardized accounting rules,
in advance for goods or services to be
procedures, and principles used 79. Materiality - The concept that
provided in the future.
primarily in the United States to ensure financial information should be reported
consistency and transparency in financial 64. Amortization Expense - The portion if its omission or misstatement could
reporting. GAAP is issued by the of an intangible asset's cost expensed influence decisions.
Financial Accounting Standards Board each period.
80. Net Book Value - The carrying
(FASB) in the U.S.
65. Audit Trail - A detailed record of all amount of an asset on the balance
49. Gross Profit - The profit earned from transactions, enabling traceability and sheet.
sales after deducting the cost of goods accountability.
81. Operating Lease - A lease that does
sold.
66. Break-Even Point - The level of sales not transfer ownership of the asset to
50. Income Tax - A tax on a company's at which a business covers its costs and the lessee.
profits. neither makes a profit nor incurs a loss.
82. Par Value - The nominal or face value
51. Intangible Asset - A non-physical 67. Capital Stock - The total amount of of a share of stock.
asset with value, such as patents or shares issued by a corporation.
83. Quick Ratio - A measure of a
trademarks.
68. Consolidation - Combining financial company's ability to pay its short-term
52. Inventory - Goods held for sale in the statements of multiple entities into one. liabilities with its most liquid assets.
normal course of business.
69. Cost Allocation - The process of 84. Receivables Turnover - A ratio that
53. Journal - The book or electronic assigning indirect costs to specific cost measures how efficiently a company
record where financial transactions are centers. collects on its accounts receivable.
initially recorded.
70. Credit Terms - The agreed-upon 85. Statement of Retained Earnings - A
54. LIFO (Last-In, First-Out) - An conditions for payment between a buyer financial statement that reconciles
inventory valuation method where the and seller changes in retained earnings. over a
most recent items are sold first. period.
71. Deferral - Delaying the recognition of
55. Marketable Securities - Investments revenue or expenses to a future period. 86. Taxable Income - A company's
that can be easily converted into cash. income on which it is subject to taxation.
72. Equity Method - Accounting for
56. Net Assets - Total assets minus total investments when a company has 87. Unexpired Cost - The portion of
liabilities. significant influence over another entity. prepaid expenses that has not yet been
consumed.
57. Operating Expense - Costs associated 73. FASB (Financial Accounting
with a company's day-to-day operations. Standards Board) - The organization 88. Working Capital is the difference
responsible for setting accounting between a company’s current assets and
58. Partnership - A business structure
standards in the United States. current liabilities. It shows the
where two or more individuals share
company’s short-term financial health
ownership and responsibilities. 74. Goodwill - The excess of the
and ability to pay day-to-day expenses.
purchase price of a business over the fair
59. Prepaid Expense - An expense paid in
value of its net assets. 89. 401(k) - A retirement savings plan
advance, recorded as an asset until it is
that allows employees to contribute a
used.
portion of their salary on a tax deferred
basis.
90. Accruals - Unrecorded expenses or • Used when goods are returned purchases of non – current assets
revenues that have been incurred but or when overcharged. should not be part of purchases.
not yet recognized. • It means the seller’s account is Purchase included both cash and
debited in buyer’s books. credit purchases
91. Angel Investor - An individual who Credit Note ➢ Dishonor of cheque – a cheque said
provides capital to startups or small • Issued by the seller to the to be honored, if the banks give the
buyer. amount to the payee, while. If the
businesses in exchange for ownership
• Confirms that the buyer’s bank refuses to play the amount to
equity. the payee, the cheque is said to be
account is credited (refund or
adjustment). dishonored. In other words,
92. Articles of Incorporation - A legal dishonor of cheque is a condition I
• Used when goods are received
document that establishes the formation back or discount given. which bank refuses to pay the
of a corporation. amount of cheque to the payee
➢ Post dated cheque (PDC) – is a
cheque written with a future date. ➢ Financial Accounting - It is a
93. Bankruptcy - A legal status of
In other words, the date the financial statement that shows how
insolvency where a business cannot cash comes in and goes out of a
appears on the cheque is after the
meet its financial obligations. date when the cheque was written business during a specific period. It
includes cash from operating,
94. Cash Equivalent - Short-term, highly ➢ Accrued revenues – are revenues investing, and financing activities
liquid investments that are easily that are earned in one accounting ➢ What is GCC VAT – is an indirect tax
period, but cash is not received that will be levied on goods and
convertible to cash.
until another accounting period services in the member state of the
Gulf cooperation Council.
95. Cost Driver - A factor that directly ➢ Accrual accounting – accounting The member states of GCC are
influences the cost of producing goods method that records revenues and Saudi Arabia, Dubai, Qatar, Bahrain,
or services. expenses when they are incurred, Oman and Kuwait. The GCC VAT will
regardless of when cash is be calculated at the rate of 5 %.
96. Depreciation Expense - The cost exchanged. The term “accrual” However, as mentioned above,
refers to any individual entry certain sectors and export will be
allocated to a tangible asset over its
recording revenue or expense in taxed zero %, making them tax
useful life. the absence of a cash transaction exempt
97. Earnings Before Interest and Taxes ➢ Prepaid income and unearned ➢ Explain Reverse charge mechanism
(EBIT) - A measure of a company's income – is funds received from a Vs Forward charge in UAE VAT? –
➢ customer prior to the provision of
profitability before interest and taxes. goods or services, it is considered a Reverse Charge Mechanism: In the
liability, since the seller has not yet UAE VAT system, the reverse
98. Financial Analyst - A professional charge mechanism applies when
delivered, and so it appears on the
who analyzes financial data to make balance sheet of the seller as a the responsibility for paying VAT
investment or business decisions. current liability shifts from the seller to the buyer.
This is commonly used for imports
99. Generally Accepted Accounting ➢ Prepaid expenses and unexpired of goods or services, where the
expenses – are future expenses buyer is required to account for the
Principles (GAAP) - A set of accounting that have been paid in advance. VAT, rather than the supplier.
standards and principles used in many Prepaid expenses are cots that have Forward Charge Mechanism: This is
countries. been paid but are not yet used up the standard VAT system where the
or have not yet expired supplier charges VAT on the sale of
100. Hedge Fund - An investment fund ➢ Basic financial Statement – goods or services and collects the
tax from the buyer. The supplier
that uses various strategies to generate • Balance sheet (statement of
then remits the VAT to the
returns for its investors. Do follow me financial position)
government.
for more quality content • Income statement (trading
and profit and loss account) Reverse Charge: Buyer pays VAT,
• Cash flow statement not the seller (used mainly for
➢ The Golden Rules of Accounting • Statement of changes in imports).
are: owners ‘equity (stock holder Forward Charge: Supplier charges
• Personal Account – Debit the equity) VAT and remits it to the
receiver, Credit the giver government
➢ Definition of sale – sales refers to
• Real Account – Debit what
the revenues earned when a ➢ WPS (wage protection system) -
comes in, Credit what goes out
company sells its goods, products, has been in operation for several
• Nominal Account – Debit all
and services (if a company sells one years as a transparent system to
expenses/losses, Credit all
of its noncurrent assets that was ensure the timely payment of
incomes/gains
used in its business, the amount employee salaries and regulate
received is not recorded in its sales employer noncompliance.
➢ Short note about debit notes and
account) Employers within its scope are
credit note
➢ Definition of Purchase – purchase required to pay salaries in the local
refers to those goods which are currency at least once a month and
Debit Note
brought with the intention of directly into a locally regulated
• Issued by the buyer to the
selling. This also means that bank account. This system helps
seller.
 protect employees' rights and differences caused by pending Commission CR
ensures transparency in salary cheques, bank charges, direct
➢ Loan taken from bank
payments. deposits, or errors, ensuring the Bank current a/c DR
accuracy of financial records Bank loan a/c CR
➢ Consolidated Financial Statement
is a financial report that combines ➢ Purpose of Bank Reconciliation ➢ Discount allowed
the financial information of a Statement (BRS): Cash/bank DR
parent company and its subsidiaries Discount allowed DR
The main purpose of BRS is to Accounts receivable CR
into one set of statements. It identify and explain differences
presents the overall financial between the company's cash book ➢ Prepaid Expenses (current asset)
position, performance, and cash Prepaid expenses DR
and the bank statement, ensuring
Bank/cash CR
flows of the entire group as if it accuracy in financial records, (Being expense paid in advance- asset)
were a single entity. This eliminates detecting errors or fraud, and
intercompany transactions to maintaining proper control over Expense DR
provide an accurate picture of the Prepaid exp CR
cash (Being portion of prepaid expense recognized)
group's financial health.
➢ What is the different between cash ➢ Outstanding expenses (current
➢ Accounting Equation liability)
and accrual accounting – cash
assets = liabilities + Capital (equity) Expenses a/c DR
accounting records transactions
Outstanding expenses CR
➢ Deferred Revenue – Liability when cash is received or paid, while (Being expense incurred but not yet paid)
refers to money received by a accrual accounting records
transaction when they occur, Outstanding expenses a/c DR
business for goods or services that
Cash/bank CR
have not yet been delivered or regardless of cash flow.
performed. It is recorded as a ➢ PQR traders purchased goods from
➢ why do you want to work
liability on the balance sheet ABC Co. for 10000 AED plus 5% vat.
accounting – I enjoy working with
because it represents an obligation They sold goods for cash 15000 vat
numbers, analyzing financial data,
to provide those goods or services payable and pass necessary journal
and ensuring accuracy in financial
in the future. Once the service is entries
records to support business
provided or the goods are
decisions Purchase a/c DR 10000
delivered, deferred revenue is Vat 5% DR 500
recognized as earned revenue on ➢ The three main components of a To ABC CR 10500
the income statement. Cash Flow Statement are:
Cash a/c DR 15750
➢ What’s the nature of “cost of • Operating Activities – Cash To sales CR 15000
goods slod” – Expenses generated or used in the core To vat 5% CR 750
business operations.
Calculate the vat payable: output tax – input
➢ What’s the nature of “unearned • Investing Activities – Cash tax
Revenue” - Liability used for or generated from 750-500 = 250 vat payable
Unearned revenue is a money investments like buying or
received from a customer for work ➢ Owner paid electricity of the
selling assets.
that has not yet been performed. company for 5000 AED. How to
• Financing Activities – Cash
Un earned revenue is a liability for pass journal entry for this
flows related to borrowing,
the recipient of the payment repaying loans, or issuing Electricity expenses DR 5000
➢ Deferred expense – Is a cost that shares and paying dividends To owners’ capital CR 5000
Or
has already been incurred, but JOURNAL ENTRYS To owner current account CR 5000
which has not yet been consumed.
The cost is recorded as an asset ➢ Provision for leave salary and ➢ Purchase goods 10000
until such time as the underlying gratuity Vat 5 % 500
Leave salary expenses DR Total 10500
goods or services are consumed; at Provision for leave salary CR
that point, the cost is charged to Gratuity Expense DR Sales goods 20000
expense Provision for Gratuity CR Vat 5% 1000
➢ Contingent liability – is a potential Total 21000
➢ Accrued Income
liability that may occur in the Accrued Income DR
Income CR What is the profit = 10000
future, such as pending lawsuits or (=Sales-COGS)
honoring products warranties ➢ Depreciation Payable Tax = 500
Depreciation of Fixed Asset DR
➢ Capital expenditure – are typically Accumulated Depreciation of fixed asset CR
➢ If a Dubai (UAE) company sells
one-time large purchases of fixed
assets that will be used for revenue ➢ Salary Payable goods to a vat-registered company
Salary Expense DR in Saudi Arabia, and the goods are
generation over a long period. Salary Payable / Outstanding Salary CR
exported (physically moved to the
➢ Revenue expenditure - are that ➢ Profit on sale of fixed asset Saudi) the transaction is treated as
ongoing operating expenses, which Cash / Bank DR a zero-rated export under UAE VAT
Accumulated Depreciation DR law
are short-term expenses used to Fixed asset CR
run that daily business operation Conditions
Profit on sale of Fixed Asset CR
• Proper export documentation
➢ Bank Reconciliation Statement ➢ Bad debt provision must be maintained
(BRS) is a statement prepared to Bad debt DR • Goods must physically leave the
Provision for bad debt CR UAE within 90 days
match the balances of the
• The Saudi buyer must be VAT-
company’s cash book with the bank ➢ Commission Receivable
registered
statement. It helps identify Accrued commission DR