Sure!
Here are some basic accounting questions and answers tailored for roles in India:
1. **What is accounting?**
- **Answer:** Accounting is the process of recording, summarizing, and reporting
financial transactions to provide useful information for decision-making.
2. **What is the accounting equation?**
- **Answer:** The accounting equation is **Assets = Liabilities + Owner's Equity**. This
equation must always be balanced and is fundamental to double-entry bookkeeping.
3. **What is double-entry bookkeeping?**
- **Answer:** Double-entry bookkeeping is an accounting system where each transaction
affects at least two accounts, with one debit and one credit. This ensures the accounting
equation stays balanced.
4. **What are the different types of accounts?**
- **Answer:** The three main types of accounts are:
- **Personal Accounts:** Related to individuals, firms, and institutions (e.g., debtors,
creditors).
- **Real Accounts:** Related to assets (e.g., machinery, buildings).
- **Nominal Accounts:** Related to income, expenses, gains, and losses (e.g., rent,
salaries).
5. **What is accrual accounting?**
- **Answer:** Accrual accounting records revenues and expenses when they are earned
or incurred, regardless of when the cash is received or paid.
6. **What is a trial balance?**
- **Answer:** A trial balance is a statement that lists all the ledger accounts and their
balances at a particular time to check the accuracy of bookkeeping.
7. **What is depreciation?**
- **Answer:** Depreciation is the systematic allocation of the cost of a tangible fixed
asset over its useful life.
8. **What is a balance sheet?**
- **Answer:** A balance sheet is a financial statement that shows a company’s assets,
liabilities, and equity at a specific point in time.
9. **What is an income statement?**
- **Answer:** An income statement, also known as a profit and loss statement, shows a
company's revenues, expenses, and profits over a specific period.
10. **What is the difference between accounts receivable and accounts payable?**
- **Answer:** Accounts receivable is the money owed to a company by its customers,
while accounts payable is the money a company owes to its suppliers.
11. **What is working capital?**
- **Answer:** Working capital is the difference between a company’s current assets and
current liabilities, indicating short-term financial health.
12. **What is goodwill?**
- **Answer:** Goodwill is an intangible asset representing the excess value paid over the
fair market value of a company’s net assets during an acquisition.
13. **What is a contingent liability?**
- **Answer:** A contingent liability is a potential liability that may occur depending on the
outcome of a future event.
14. **What is the purpose of financial statements?**
- **Answer:** Financial statements provide information about a company’s financial
performance and position to stakeholders for decision-making purposes.
15. **What are prepaid expenses?**
- **Answer:** Prepaid expenses are payments made for goods or services to be received
in the future, recorded as an asset until used.
16. **What is a general ledger?**
- **Answer:** A general ledger is a comprehensive record of all the financial transactions
of a company. It contains all the accounts used to prepare financial statements, including
assets, liabilities, equity, revenues, and expenses.
17. **What are journal entries?**
- **Answer:** Journal entries are records of financial transactions in the accounting
system. Each entry includes the date, accounts affected, amounts debited and credited,
and a brief description of the transaction.
18. **What is the purpose of a cash book?**
- **Answer:** A cash book is a financial journal that records all cash receipts and
payments, including bank deposits and withdrawals. It serves both as a journal and a
ledger for cash transactions.
19. **What is the difference between direct and indirect expenses?**
- **Answer:** Direct expenses are costs that can be directly traced to a specific cost
object, such as a product or project (e.g., raw materials). Indirect expenses are costs that
cannot be directly traced to a specific cost object and are usually allocated across multiple
cost objects (e.g., utilities, rent).
20. **What is the concept of conservatism in accounting?**
- **Answer:** Conservatism is a principle that suggests accounting should be done in a
manner that does not overstate assets or income. It encourages recognizing expenses and
liabilities as soon as possible, but only recognizing revenues when they are assured.
21. **What is a petty cash fund?**
- **Answer:** A petty cash fund is a small amount of cash kept on hand to cover minor
expenses, such as office supplies or small employee reimbursements. It is replenished
periodically and recorded in the accounting system.
22. **What are accrued expenses?**
- **Answer:** Accrued expenses are costs that have been incurred but not yet paid or
recorded in the accounts. These expenses are recognized in the period they are incurred, in
accordance with the matching principle.
23. **What is a receivable turnover ratio?**
- **Answer:** The receivable turnover ratio measures how efficiently a company collects
its accounts receivable. It is calculated by dividing net credit sales by the average accounts
receivable. A higher ratio indicates efficient collection of receivables.
24. **What is a payables turnover ratio?**
- **Answer:** The payables turnover ratio measures how quickly a company pays off its
suppliers. It is calculated by dividing total supplier purchases by the average accounts
payable. A higher ratio indicates prompt payment to suppliers.
25. **What is the purpose of a reconciliation statement?**
- **Answer:** A reconciliation statement is used to ensure that two sets of records (e.g.,
bank statement and company ledger) are in agreement. It identifies and explains any
discrepancies, ensuring the accuracy of financial records.
26. **What is a fixed asset register?**
- **Answer:** A fixed asset register is a detailed record of all fixed assets owned by a
company, including information such as acquisition cost, date of purchase, depreciation,
and current book value.
27. **What is the purpose of a chart of accounts?**
- **Answer:** A chart of accounts is an organized list of all accounts used by a company
in its accounting system. It provides a framework for recording and reporting financial
transactions and ensures consistency in financial reporting.
28. **What are the golden rules of accounting?**
- **Answer:** The golden rules of accounting are:
- **Personal Accounts:** Debit the receiver, credit the giver.
- **Real Accounts:** Debit what comes in, credit what goes out.
- **Nominal Accounts:** Debit all expenses and losses, credit all incomes and gains.
29. **What is a subsidiary ledger?**
- **Answer:** A subsidiary ledger is a detailed ledger that contains a group of related
accounts. For example, the accounts receivable subsidiary ledger contains individual
customer accounts, while the general ledger shows the total accounts receivable.
30. **What is the difference between gross profit and net profit?**
- **Answer:** Gross profit is the difference between sales revenue and the cost of goods
sold (COGS). Net profit is the amount remaining after all expenses, including operating
expenses, interest, and taxes, have been deducted from the gross profit.
31. **What is an audit?**
- **Answer:** An audit is an independent examination of financial statements and
records to ensure accuracy, compliance with accounting standards, and to identify any
discrepancies or fraud.
32. **What is a debit note?**
- **Answer:** A debit note is a document issued by a buyer to a seller as a means of
formally requesting a reduction in the amount owed to the seller due to issues like
damaged goods or errors in the invoice.
33. **What is a credit note?**
- **Answer:** A credit note is a document issued by a seller to a buyer, indicating that the
buyer’s account has been credited due to returned goods, overcharges, or other
adjustments.
34. **What is the purpose of a bank reconciliation statement?**
- **Answer:** A bank reconciliation statement compares the company’s ledger entries
with the bank statement to ensure that the balances match and to identify any
discrepancies, such as unrecorded transactions or errors.
35. **What are the different types of depreciation methods?**
- **Answer:** Common depreciation methods include:
- **Straight-Line Method:** Allocates an equal amount of depreciation each year.
- **Declining Balance Method:** Accelerates depreciation, allocating higher amounts in
the early years.
- **Units of Production Method:** Depreciates based on usage or production levels.
- **Sum-of-the-Years’-Digits Method:** Accelerates depreciation using a fraction of the
depreciable amount each year.
36. **What is the difference between tangible and intangible assets?**
- **Answer:** Tangible assets are physical assets, such as buildings, machinery, and
inventory, that can be touched and seen. Intangible assets are non-physical assets, such
as patents, trademarks, and goodwill, that cannot be physically touched.
37. **What is the purpose of a voucher in accounting?**
- **Answer:** A voucher is a document that authorizes a payment or confirms that a
transaction has occurred. It serves as evidence of the transaction and is used to maintain
the integrity of the accounting records.
38. **What is an example of a contra account?**
- **Answer:** An example of a contra account is Accumulated Depreciation. It is a contra
asset account that reduces the value of the related asset account (e.g., equipment) on the
balance sheet.
39. **What is a profit and loss appropriation account?**
- **Answer:** A profit and loss appropriation account is used to show how the profits of a
company are distributed or allocated, such as dividends, transfers to reserves, and
retained earnings.
40. **What is the difference between capital and revenue expenditure?**
- **Answer:** Capital expenditure refers to funds spent on acquiring or improving long-
term assets, which provide benefits for more than one accounting period. Revenue
expenditure refers to funds spent on day-to-day operating expenses, which are incurred
within the same accounting period.
41. **What is a general journal?**
- **Answer:** A general journal is a book of original entry where all financial transactions
are initially recorded in chronological order before being posted to the respective ledger
accounts.
42. **What is the purpose of a suspense account?**
- **Answer:** A suspense account is a temporary account used to record discrepancies
or unknown transactions until the proper account can be determined. Once identified, the
amounts in the suspense account are transferred to the correct accounts.
43. **What is the FIFO method of inventory valuation?**
- **Answer:** FIFO (First-In, First-Out) is an inventory valuation method where the earliest
purchased items are assumed to be sold first, and the remaining inventory is valued at the
most recent purchase prices.
44. **What is the LIFO method of inventory valuation?**
- **Answer:** LIFO (Last-In, First-Out) is an inventory valuation method where the most
recently purchased items are assumed to be sold first, and the remaining inventory is
valued at the oldest purchase prices.
45. **What is the weighted average method of inventory valuation?**
- **Answer:** The weighted average method values inventory based on the average cost
of all items available for sale during the period, calculated by dividing the total cost of
goods available for sale by the total number of units available.
46. **What are the key elements of an internal control system?**
- **Answer:** Key elements of an internal control system include:
- **Segregation of Duties:** Separating responsibilities to reduce the risk of errors and
fraud.
- **Authorization and Approval:** Ensuring transactions are approved by authorized
personnel.
- **Documentation:** Maintaining accurate and complete records of transactions.
- **Reconciliation:** Regularly comparing internal records with external statements.
- **Physical Controls:** Safeguarding assets through measures like locks and security
systems.
47. **What is the accrual basis of accounting?**
- **Answer:** The accrual basis of accounting records revenues and expenses when they
are earned or incurred, regardless of when the cash is received or paid. This method
provides a more accurate representation of a company’s financial position and
performance.
48. **What is an example of a non-cash expense?**
- **Answer:** An example of a non-cash expense is depreciation. It represents the
allocation of the cost of a tangible asset over its useful life and does not involve actual cash
outflow.
49. **What is the purpose of a trial balance?**
- **Answer:** A trial balance is a summary of all ledger accounts and their balances at a
specific point in time. It ensures that the total debits equalSure! Here are even more basic
accounting questions and answers tailored for roles in India:
### Basic Accounting Questions
49. **What is an example of a non-cash expense?**
- **Answer:** An example of a non-cash expense is depreciation. It represents the
allocation of the cost of a tangible asset over its useful life and does not involve an actual
cash outflow.
50. **What is the purpose of a trial balance?**
- **Answer:** A trial balance is a summary of all ledger accounts and their balances at a
specific point in time. It ensures that the total debits equal the total credits, indicating that
the bookkeeping entries are mathematically correct.
51. **What is the importance of financial ratios?**
- **Answer:** Financial ratios are important for analyzing a company’s financial health
and performance. They provide insights into liquidity, solvency, profitability, and
operational efficiency, helping stakeholders make informed decisions.
52. **What is a balance sheet?**
- **Answer:** A balance sheet is a financial statement that provides a snapshot of a
company’s financial position at a specific point in time. It lists the company’s assets,
liabilities, and owner’s equity.
53. **What is an income statement?**
- **Answer:** An income statement, also known as a profit and loss statement, shows a
company’s revenues, expenses, and profits over a specific period.
54. **What is the difference between accounts receivable and accounts payable?**
- **Answer:** Accounts receivable is the money owed to a company by its customers,
while accounts payable is the money a company owes to its suppliers.
55. **What is working capital?**
- **Answer:** Working capital is the difference between a company’s current assets and
current liabilities, indicating short-term financial health.
56. **What is goodwill?**
- **Answer:** Goodwill is an intangible asset representing the excess value paid over the
fair market value of a company’s net assets during an acquisition.
57. **What is a contingent liability?**
- **Answer:** A contingent liability is a potential liability that may occur depending on the
outcome of a future event.
58. **What is the purpose of financial statements?**
- **Answer:** Financial statements provide information about a company’s financial
performance and position to stakeholders for decision-making purposes.
59. **What are prepaid expenses?**
- **Answer:** Prepaid expenses are payments made for goods or services to be received
in the future, recorded as an asset until used.
60. **What is a general ledger?**
- **Answer:** A general ledger is a comprehensive record of all the financial transactions
of a company. It contains all the accounts used to prepare financial statements, including
assets, liabilities, equity, revenues, and expenses.
61. **What are journal entries?**
- **Answer:** Journal entries are records of financial transactions in the accounting
system. Each entry includes the date, accounts affected, amounts debited and credited,
and a brief description of the transaction.
62. **What is the purpose of a cash book?**
- **Answer:** A cash book is a financial journal that records all cash receipts and
payments, including bank deposits and withdrawals. It serves both as a journal and a
ledger for cash transactions.
63. **What is the difference between direct and indirect expenses?**
- **Answer:** Direct expenses are costs that can be directly traced to a specific cost
object, such as a product or project (e.g., raw materials). Indirect expenses are costs that
cannot be directly traced to a specific cost object and are usually allocated across multiple
cost objects (e.g., utilities, rent).
64. **What is the concept of conservatism in accounting?**
- **Answer:** Conservatism is a principle that suggests accounting should be done in a
manner that does not overstate assets or income. It encourages recognizing expenses and
liabilities as soon as possible, but only recognizing revenues when they are assured.
65. **What is a petty cash fund?**
- **Answer:** A petty cash fund is a small amount of cash kept on hand to cover minor
expenses, such as office supplies or small employee reimbursements. It is replenished
periodically and recorded in the accounting system.
66. **What are accrued expenses?**
- **Answer:** Accrued expenses are costs that have been incurred but not yet paid or
recorded in the accounts. These expenses are recognized In the period they are incurred, in
accordance with the matching principle.
67. **What is a receivable turnover ratio?**
- **Answer:** The receivable turnover ratio measures how efficiently a company collects
its accounts receivable. It is calculated by dividing net credit sales by the average accounts
receivable. A higher ratio indicates efficient collection of receivables.
68. **What is a payables turnover ratio?**
- **Answer:** The payables turnover ratio measures how quickly a company pays off its
suppliers. It is calculated by dividing total supplier purchases by the average accounts
payable. A higher ratio indicates prompt payment to suppliers.
69. **What is the purpose of a reconciliation statement?**
- **Answer:** A reconciliation statement is used to ensure that two sets of records (e.g.,
bank statement and company ledger) are in agreement. It identifies and explains any
discrepancies, ensuring the accuracy of financial records.
70. **What is a fixed asset register?**
- **Answer:** A fixed asset register is a detailed record of all fixed assets owned by a
company, including information such as acquisition cost, date of purchase, depreciation,
and current book value.
71. **What is the purpose of a chart of accounts?**
- **Answer:** A chart of accounts is an organized list of all accounts used by a company
in its accounting system. It provides a framework for recording and reporting financial
transactions and ensures consistency in financial reporting.
72. **What are the golden rules of accounting?**
- **Answer:** The golden rules of accounting are:
- **Personal Accounts:** Debit the receiver, credit the giver.
- **Real Accounts:** Debit what comes in, credit what goes out.
- **Nominal Accounts:** Debit all expenses and losses, credit all incomes and gains.
73. **What is a subsidiary ledger?**
- **Answer:** A subsidiary ledger is a detailed ledger that contains a group of related
accounts. For example, the accounts receivable subsidiary ledger contains individual
customer accounts, while the general ledger shows the total accounts receivable.
74. **What is the difference between gross profit and net profit?**
- **Answer:** Gross profit is the difference between sales revenue and the cost of goods
sold (COGS). Net profit is the amount remaining after all expenses, including operating
expenses, interest, and taxes, have been deducted from the gross profit.
75. **What is an audit?**
- **Answer:** An audit is an independent examination of financial statements and
records to ensure accuracy, compliance with accounting standards, and to identify any
discrepancies or fraud.
76. **What is a debit note?**
- **Answer:** A debit note is a document issued by a buyer to a seller as a means of
formally requesting a reduction in the amount owed to the seller due to issues like
damaged goods or errors in the invoice.
77. **What is a credit note?**
- **Answer:** A credit note is a document issued by a seller to a buyer, indicating that the
buyer’s account has been credited due to returned goods, overcharges, or other
adjustments.
78. **What is the purpose of a bank reconciliation statement?**
- **Answer:** A bank reconciliation statement compares the company’s ledger entries
with the bank statement to ensure that the balances match and to identify any
discrepancies, such as unrecorded transactions or errors.
79. **What are the different types of depreciation methods?**
- **Answer:** Common depreciation methods include:
- **Straight-Line Method:** Allocates an equal amount of depreciation each year.
- **Declining Balance Method:** Accelerates depreciation, allocating higher amounts in
the early years.
- **Units of Production Method:** Depreciates based on usage or production levels.
- **Sum-of-the-Years’-Digits Method:** Accelerates depreciation using a fraction of the
depreciable amount each year.
80. **What is the difference between tangible and intangible assets?**
- **Answer:** Tangible assets are physical assets, such as buildings, machinery, and
inventory, that can be touched and seen. Intangible assets are non-physical assets, such
as patents, trademarks, and goodwill, that cannot be physically touched.
81. **What is the purpose of a voucher in accounting?**
- **Answer:** A voucher is a document that authorizes a payment or confirms that a
transaction has occurred. It serves as evidence of the transaction and is used to maintain
the integrity of the accounting records.
82. **What is an example of a contra account?**
- **Answer:** An example of a contra account is Accumulated Depreciation. It is a contra
asset account that reduces the value of the related asset account (e.g., equipment) on the
balance sheet.
83. **What is a profit and loss appropriation account?**
- **Answer:** A profit and loss appropriation account is used to show how the profits of a
company are distributed or allocated, such as dividends, transfers to reserves, and
retained earnings.
84. **What is the difference between capital and revenue expenditure?**
- **Answer:** Capital expenditure refers to funds spent on acquiring or improving long-
term assets, which provide benefits for more than one accounting period. Revenue
expenditure refers to funds spent on day-to-day operating expenses, which are incurred
within the same accounting period.
85. **What is a general journal?**
- **Answer:** A general journal is a book of original entry where all financial transactions
are initially recorded in chronological order before being posted to the respective ledger
accounts.
1. **What are the major components of financial statements, and why are they
important?**
- **Answer:** The major components of financial statements are the balance sheet,
income statement, cash flow statement, and statement of changes in equity. They provide
a comprehensive view of a company’s financial position, performance, and cash flows,
helping stakeholders make informed decisions.
2. **How do you account for provisions and contingencies?**
- **Answer:** Provisions are recognized when a company has a present obligation as a
result of a past event, it is probable that an outflow of resources will be required, and a
reliable estimate can be made. Contingencies are potential liabilities that depend on the
outcome of a future event. They are disclosed in the financial statements if the likelihood of
an outflow is possible but not probable.
3. **What is the purpose of a depreciation schedule, and how is it prepared?**
- **Answer:** A depreciation schedule outlines the allocation of the cost of a tangible
fixed asset over its useful life. It is prepared by determining the asset's cost, useful life,
salvage value, and the chosen depreciation method (e.g., straight-line, declining balance).
The schedule helps in systematically allocating depreciation expense to each accounting
period.
4. **How do you handle the accounting for employee benefits under IND AS 19?**
- **Answer:** Under IND AS 19, employee benefits are classified into short-term benefits,
post-employment benefits, other long-term benefits, and termination benefits. Each
category is accounted for differently, with post-employment benefits (e.g., gratuity,
pension) requiring actuarial valuation and recognition of the present value of defined
benefit obligations.
5. **Can you explain the process of consolidation in financial accounting?**
- **Answer:** Consolidation involves combining the financial statements of a parent
company and its subsidiaries to present as a single entity. The process includes eliminating
intercompany transactions and balances, aligning accounting policies, and aggregating
assets, liabilities, revenues, and expenses. Any non-controlling interest is also reported
separately.
6. **What is the significance of segment reporting, and how is it done?**
- **Answer:** Segment reporting provides financial information about different business
segments or geographical areas of a company. It helps stakeholders understand the
performance and risks of each segment. Segment reporting is done by identifying operating
segments, measuring segment performance, and disclosing segment revenue, profit,
assets, and liabilities.
7. **How do you account for government grants under IND AS 20?**
- **Answer:** Government grants are recognized when there is reasonable assurance that
the grant will be received and the company will comply with the conditions attached.
Grants related to assets are presented as deferred income and recognized in profit or loss
over the asset’s useful life. Grants related to income are recognized as income over the
periods that match the related costs.
8. **What is the difference between a capital lease and an operating lease?**
- **Answer:** A capital lease (finance lease) transfers substantially all the risks and
rewards of ownership to the lessee and is recognized as an asset and liability in the
lessee’s balance sheet. An operating lease does not transfer substantial risks and rewards
and is treated as a rental agreement, with lease payments recognized as an expense.
9. **How do you handle accounting for fixed assets under IND AS 16?**
- **Answer:** Under IND AS 16, fixed assets are initially measured at cost, including all
costs necessary to bring the asset to its intended use. Subsequent measurement can be
done using the cost model (cost less accumulated depreciation and impairment) or the
revaluation model (fair value at revaluation date less subsequent depreciation and
impairment). Depreciation is charged systematically over the asset’s useful life.
10. **Can you explain the concept of fair value measurement and its application?**
- **Answer:** Fair value measurement involves estimating the price at which an asset
could be sold or a liability transferred in an orderly transaction between market
participants at the measurement date. Fair value is used in various accounting standards,
such as IND AS 113, to provide a consistent framework for measuring and disclosing fair
value. It applies to assets, liabilities, and equity instruments recognized or disclosed at fair
value.
