AccountancyKey concepts Accountant Accrual Bookkeeping Accounting period Cash and accrual basis Cash flow forecasting Chart of accounts Convergence Journal Special journals Cost of goods sold Credit terms Debits and credits Double-entry system FIFO and LIFO GAAP / IFRS General ledger Goodwill Historical cost Matching principle Revenue recognition Trial balance Constant item purchasing power accounting Mark-to-market accounting Management Accounting Principles Fields of accounting Cost Financial Forensic Fund Management S. Tax (U.) Financial statements Balance Sheet Cash flow statement Income statement Statement of retained earnings Notes XBRL Management discussion and analysis Auditing Auditor's report Financial audit GAAS / ISA Internal audit Control self-assessment Sarbanes–Oxley Act Accounting qualifications CIA CA CPA CCA CGA CMA CAT CIIA IIA CTP . Please prepare on the following topics - Capital Market: * What is capital Market? * Primary Market? * Secondary Market? * What are Shares and its types? * What are IPOs? * What is NSE/BSE/Sensex? * What is SEBI? What is the main role of SEBI? * What are depositories? * What is Hedging? What are Hedge Funds? Mutual Funds: * What are mutual funds and its types? * What are derivatives? * Depreciation Accounts: * What is Accounting and what are Accounting Principles? * Basic Journal Entries * What is Bank Reconciliation? * Golden Rules of Accounting? * What is Balance sheet and its use? * What is NAV and how is it calculated * What is Accounts Payable & Accounts Receivable? * What do you mean by Lifo Fifo? Common Finance Interview Questions (and Answers) Posted on September 23. 2011 by Matan| 7 Comments . Below we have selected most common accounting questions you should expect to see during the recruiting process. while giving them additional ammunition to go after you with more complicated question on the same topic. Longer answers may lose an interviewer. “Once a knowledge gap is identified. Someone who can‟t answer basic questions like „walk me through a DCF‟ has not sufficiently prepared for the interview. 4. Some are easy. Over the next few months. 3. If interviewers think that you‟re making up answers. especially as many finance firms will devote considerable resources to mentor and develop their new employees. then technical questions do not apply to them. valuation. Wall Street Prep With the start of a new academic year. Many students erroneously believe that if they are not finance/business majors. COMMON FINANCE INTERVIEW QUESTIONS (AND ANSWERS) Before we get to accounting questions. we‟ll be publishing most frequently asked technical finance interview questions and answers across a variety of topics – accounting (in this issue). but of all of them allow interviewers to gauge your knowledge level without the need to ask more complex valuation/finance questions.By Arkady Libman. and instead instantly create an expense on the income statement that reduces equity via retained earnings? . Another added. One recruiter we‟ve spoken to said “while we do not expect liberal arts majors to have a deep mastery of highly technical concepts. some are more challenging. This will be followed by uncomfortable silence. visit our finance interview prep page.. 5. in my opinion”. It‟s ok to say “I don‟t know” a few times during the interview. which will lead to more creative answers. corporate finance – to get you prepared. which will lead to more complicated questions and a slow realization by you that interviewer knows that you don‟t really know. Managing Director. so don‟t underestimate the importance of accounting questions. Now without further ado…. it‟s typically very difficult to reverse the direction of the interview. interviewers want to be assured that students going into the field are committed to the work they‟ll be doing for the next few years. for details on enrolling in prep videos and interview guides. 2. do not create any asset. taxes. while other cash outflows. NOW ON TO ACCOUNTING QUESTIONS… Accounting is the language of business. Q: Why do capital expenditures increase assets (PP&E). they‟ll continue probing you further. we know that finance interviews are again at the forefront of many of your minds.” Keep each of your answers limited to 2 minutes. etc. On the contrary. Be prepared for technical questions. 1. here are some interview best practices to keep in mind when getting ready for the big day. we do expect them to understand the basic accounting and finance concepts as they relate to investment banking. And no job offer. Requisite plug here: If you are in immediate need of complete help. like paying salary. an increase in accounts receivable is an adjustment to net income to reflect the fact that the company never actually received those funds. PP&E goes down by depreciation. lowering accounts payable). while retained earnings go down (balance sheet). Q: How is the income statement linked to the balance sheet? A: Net income flows into retained earnings. A. Two examples involve unsustainable improvements in working capital (a company is selling off inventory and delaying payables). asset sales. purchase of intangible assets. Q: Is it possible for a company to show positive cash flows but be in grave trouble? A: Absolutely. increasing accounts receivable. benefits the period in which the wages are generated only and should be expensed then. cash flows from investments. This is what differentiates an asset from an expense. Mention repurchase/issuance of debt and equity and paying out dividends to arrive at cash flow from financing activities. Q: Walk me through a cash flow statement. there is no impact (income statement). Adding cash flows from operations. Q: Why are increases in accounts receivable a cash reduction on the cash flow statement? A: Since our cash flow statement starts with net income. changes in working capital and deferred taxes) to arrive at cash flows from operating activities.in the pipeline Q: How is it possible for a company to show positive net income but go bankrupt? A: Two examples include deterioration of working capital (i. and the purchase of PP&E is a cash outflow (cash flow statement) Over the life of the asset: depreciation reduces net income (income statement). go line by line through major adjustments (depreciation. Start with net income. Mention capital expenditures. it tells the financial statement user how much cash is tied up in the business through items such as receivables and inventories and also how much cash is going to be needed to pay off short term obligations in the next 12 months.e. cash goes down. and another example involves lack of revenues going forward. The employees‟ work. and financial shenanigans. Q: I buy a piece of equipment. Beginning-of-period cash balance plus change in cash allows you to arrive at end-of-period cash balance. on the other hand. and purchase/sale of investment securities to arrive at cash flow from investing activities. Q: What is working capital? A: Working capital is defined as current assets minus current liabilities. Q: What is goodwill? . while PP&E goes up (balance sheet). walk me through the impact on the 3 financial statements A: Initially.A: Capital expenditures are capitalized because of the timing of their estimated benefits – the lemonade stand will benefit the firm for many years. and cash flows from financing gets you to total change of cash. and depreciation is added back (because it is a non-cash expense that reduced net income) in the cash from operations section (cash flow statement). Q: What is a deferred tax asset and why might one be created? A: Deferred tax asset arises when a company actually pays more in taxes to the IRS than they show as an expense on their income statement in a reporting period. Acquirer records cash decline of $500 to finance acquisition Acquirer’s PP&E increases by $100m Acquirer’s debt increases by $50m Acquirer records goodwill of $450m Q: What is a deferred tax liability and why might one be created? A: Deferred tax liability is a tax expense amount reported on a company‟s income statement that is not actually paid to the IRS in that time period. Let‟s walk through the following example: Acquirer buys Target for $500m in cash. Accounting interview questions and answers 150 Accounting interview questions and answers sample You also use free job interview materials for accounting posisions as follows: • 103 interview questions and answers. which ultimately leads to differences in tax expense reported in the financial statements and taxes payable to the IRS. Best regards. • 13 types of job interview.A: Goodwill is an asset that captures excess of the purchase price over fair market value of an acquired business. • Interview thank you letter. debt of $50m. Target has 1 asset: PPE with book value of $100. and equity of $50m = book value (A-L) of $50m. It arises because when a company actually pays less in taxes to the IRS than they show as an expense on their income statement in a reporting period. Differences in revenue recognition. I hope you enjoyed this article. expense recognition (such as warranty expense).com. • 31 job interview tips. but is expected to be paid in the future. and net operating losses (NOLs) can create deferred tax assets. Please feel free to write me with any comments or recommendations at alibman@wallstreetprep. . Differences in depreciation expense between book reporting (GAAP) and IRS reporting can lead to differences in income between the two. Tell me about an invoice discrepancy you discovered and how you resolved it? 10. What software applications have you used for accounts receivable? 19. What are the steps to take before you approve an invoice for payment? 9. Have you ever been involved in an invoice dispute? How did you manage the problem? 14. Detail your responsibilities in accounts receivable? 17. How many invoices on average do you handle on a weekly/monthly basis? 8.I. What is your greatest weakness? 4. What accounts payable applications are you familiar with? 16. Sample Accounting interview questions You can ref 150 accounting interview answer samples. Describe a time when you implemented a change in accounting protocol or procedure that provided a commercial benefit to the organization you were working in? 13. Tell me about a time where you took the lead on an accounting project. What are the steps you go through to check your accounting work before submitting it? Give an example of this? 11. answer structure … by links below: 1. Explain the accounts payable cycle? 15. Why did you leave your last job? 3. Tell me about yourself? 2. answer tips. What steps did you take to make sure that everybody remained focused on the goal? 12. What are the qualities that make for a good accountant? 7. Why do you want to work as an accountant? 5. What do you consider to be the biggest challenge facing the accounting profession today? . Why you chose your A Levels for Accounting? 6. What are the most important goals of accounts receivable? 18. and what sales account GL do you use? Also.20.00 worth of supplies are purchased on account? 29. Give me examples of the accounting reports you have prepared? Accounts payable 22. Describe the advantages and disadvantages of the different accounting packages/systems you have used recently in your accountant jobs? 21. What is a Work flow? And take Retail shop as example and explain the Work flow of the Retail shop? 34. What documents are required before verifying invoice? what is the process if the supplier passes an invoice for more amount? 23. What items would you verify when processing an expense report /invoice for payment? 30. What is Component Level Default Processing? 28. What is difference between account payable and bills payable? 24. What entry is recorded when $75. What type of account appear on a post closing trial balance? 31. what are roll up accounts in the chart of accounts? 37. What is the Debit Balance recovery? How we can recover if we wont have any future transactions from supplier? . How to populate it in the invoice using the IDOC? 32. When setting up Purchase items for overhead expenses (G&A expenses) what expense GL account do you use. What are the steps involved in finalization? 36. the value of the tax code is not present but in the idoc the value of the tax code is present. What is the full form of the trem WIRE in wire payment ? Explain the process for making and receiving the payment through WIRE? 27. In the invoice. Please explain end to end process of accounts payable? 33. What is Reconciliation Statement? 25. Why does a company/business require an Accounts payable process? 26. What is the difference between Payments-Liquidation(Disbursements) & Dividend Warrants Liquidation? 35. Tell us about an invoice discrepancy that you discovered and how you resolved the discrepancy? 58. What is 3 Way Matching? 55. What is different between automatic Payments Batches and automatic payments? 43. What is debit and credit from the banks point of view? 47. What steps would you take before approving an invoice for payment? 53. What steps would you take before making a payment? 45. How does the payment mechanism work? 51. what is the difference between debenture and preference share? 59. What do you understand by Intercompany Settlement? 48. How to pass a JV when we receive bill including service tax? How to close this a/c? 54. What steps would you take before approving an invoice for payment? 56. What is debit and credit from the customer point of view? 46. What is another name for a real account in accounting? is it a permanent account or a temporary account? 42. What is interest on Capital? 41. What is the difference between EFT & Wire? 49.38. What do you mean by Mischarge Correction? 50. What is the meaning of TDS? How it is charged? 40. What is the difference between Consiner and Consinee? 52. Which area of accounting are you strongest? Which area of accounting would you like to improve? 39. What is STPI ? why STPI knowledge required in Accounts Payable? . What is the difference between billable and non-billable expenses? 57. What are steps to define supplier? 44. What is effective collection? 77. What items would you verify when processing an expense report / invoice for payment? 61. What is the table that is used for aging bucket report. Tell us about an invoice discrepancy that you discovered and how you resolved the discrepancy? 63. what is the main purpose of this report? 78. What are the goals of Accounts receivable? 72. why they aren’t had only single section neither finance nor accounts? . After receiving Payment from Customer. What is total flow of Account Receivables? 66. What is reconciliation statement and investment banking? 71. Deferred Payments are usually only accepted on partial orders that are? 70. Which are the main MIS Reports of an accounts department & what the format of preparing the MIS? Accounts receivables 65. What is the difference between back end collections and front end collections? 75. What is the Auto Invoice? What are the setup Steps for Auto Invoice? 79. Explain about Accounts Receivables in Accounting? 69. What are the powerful software that could be used for doing efficient Accounts receivable? 73. Why does a company/business require an Accounts payables process? 64.60. What items of information do you need before you can approve an invoice for payment? 62. Why is Capital amount put in Liabilities and not in Assets? 74. What is next step till finalization? 67. What are examples of deferred revenue expenditure? 76. What is the difference between finance and accounts? most of the companies having a different section like finance and accounts. What is Reconciliation? 68. Is there a report to search for invoices by Payment Term and Due Dates? List of fixed assets interview questions 86.80. What is Payroll Disbursements Journal? 90. What is the difference between discount and rebate? 98. What experience have you had in payroll? 88. What is meant by discount eligibility of a buyer? 97. What are the steps in Payroll Management? 91. What are the activities present in payroll task? 89. What are the various means of calculating depreciation? Cashier/Accounting 96. Give the difference between a pass book and a cash book? 100. What do you mean by Money Laundering? 101. What do you have to prepare before working? 99. What is the difference between paycheck and Pays lip? 93. What are the issues related with Accounts receivable? 83. What experience have you had in fixed assets accounting? 95. How advantage is payroll for small business? 94. What is the difference between debenture holders and creditors? 85. What is the advantage of maintaining Accounts receivable? 82. what criteria distinguish a consultant from an employee? 87. Who is responsible for maintaining the Accounts receivable in an organization? 81. What is Salary TDS & TDS? . What are the components or materials used by Accounts receivable departments? 84. Based on Internal Revenue Service rules. What is the software efficient for carrying out payroll tasks? 92. What is the deffred revenue expenditure and its treatment in accounts? 104. What is meant by Deferred Revenue Expenditure? 110. What software do you use for cashier? 111. Describe some of the methods used to allocate support costs? 119. What is the difference between Expenses & Expenditure? 117. Tel me about cashier process? 115. What is Cash Book and Pass Book? 109. Tell us about your experience in cost accounting? 118.102. What are Bill of Lading & Shipping Bill. What is the purpose of charge back? 121. What is the difference between core banking and retail banking? 112. What is the difference between them? Cost accounting 116. What is charge back? 120. Have you implemented or administered a charge back system? 122. Tell something about your experience as a cashier? 107. What is the difference between net income and free cash flow? 106. What is MIS Report ? How do you prepare it? 105. Name some components of an effective charge back system? 123. Explain discount eligibility of a buyer? 113. What are fixed costs? . Differentiate between discount and rebate? 114. What is meant by dealers for treasury? 108. What do you have to do after finishing work shift? 103. Explain fixed cost. What is MIS report and do you prepare it? General accountant 139. What is the purpose of charge back? 138. variable cost and marginal cost? 136. What is marginal cost? 126. What is meant by cost accounting? 129. What is charge back? 135. 143. Explain the steps of generating a final account. Give any three major differences between management accountancy and cost accountancy. Tell us about your experience in cost accounting? 133. 140. Why is interest on loan not included in cost sheet? 130.124. . total cost of production and cost of sales? 128. Explain the contemporary applications of AP. What are variable costs? 125. Describe some of the methods used to allocate support costs? 134. It indicates no Loss and no Profit? 132. State AP & AR. What is Break Even Point? What does it signify? 137. How to make a table for to calculate the prime cost. Define a shadow balance sheet. factory cost. Tell us about its usage and advantages. What is BEP? BEP-Break Event Point. Tell me the information about cost sheets? 127. What factors should be considered during the preparation of such an account? 142. What does the name costing mean and what is the importance of costing? 131. 141. What do you understand from the term” cash flow”? Explain the procedure to put noncurrent lease payment on a cash flow statement. one of its first tasks is to determine whether or not the project will prove to be profitable. . 148. more emphasis will be put on one approach over another. 146. are typically required. Although an ideal capital budgeting solution is such that all three metrics will indicate the same decision.144. or at least recommended. Tell us the procedure of a liability side of the balance sheet. Explain the terms: Provision. 145. internal rate of return (IRR) and payback period (PB) methods are the most common approaches to project selection. Businesses. these approaches will often produce contradictory results. Explain the procedure of creating a control account. specifically corporations. Define control account. The net present value (NPV).Tutorial: Financial Concepts and Capital Budgeting When a firm is presented with a capital budgeting decision. Depending on managements' preferences and selection criteria. How does a communicational bridge play a vital role in managing and recording the accounting statements? An Introduction To Corporate Valuation Methods July 08 2011| Filed Under » Accounting. This can involve almost anything from acquiring a lot of land to purchasing a new truck or replacing old machinery. 147. to undertake those projects which will increase profitability and thus enhance shareholders' wealth. What do you understand from management accountancy? Explain the various functions of management accountancy. Differentiate between a check and cash payment. Explain the official procedure of cancelling a cheque. 150. Accrual and Reserve. How do you explain accounts receivable and accounts payable? What are the different strategies available to control both types of accounts? 149. Give an example for each. Business Capital budgeting involves choosing projects that add value to the firm. which is worse than that of the previous example. Luckily. For example. this problem can easily be amended by implementing a discounted payback period model.000.000 Year 5 300.000 Payback periods are typically used when liquidity presents a major concern. .000 Year 3 300. The second problem is more serious. Both.Nonetheless. There are two major drawbacks to using the PB metric to determine capital budgeting decisions. they might be able to only undertake one major project at a time. such as the salvage value. Firstly. there are common advantages and disadvantage associated with these widely used valuation methods. A short PB period is preferred as it indicated that the project will "pay for itself" within a smaller time frame. Thus the PB is not a direct measure of profitability. Investment Inflows Year 0 -1. Therefore. In the following example. or three years and four months. but the large $15. Such an error violates one of the basic fundamental principles of finance. if a capital budgeting projects requires an initial cash outlay of $1 million.000 cash inflow occurring in year five is ignored for the purposes of this metric.000. Basically.000 Year 1 300. the PB reveals how many years are required to for the cash inflows to equate to the one million dollar outflow.00 Year 2 300. If a company only has a limited amount of funds. Simply calculating the PB provides a metric which places the same emphasis on payments received in year one and year two. the discounted PB period factors in TVM and allows one to determine how long it take for the investment to be recovered on a discounted cash flow basis. The following example has a PB period of four years. the PB period would be three and one-third of a year.000 Year 4 300. Payback Period The payback period calculates the length of time required to recoup the original investment. Another major advantage of using the PB is that it is easy to calculate once the cash flow forecasts have been established. payback periods and discounted payback periods ignore the cash flows that occur towards the end of a project's life. the payback period does not account for time value of money (TVM). management will heavily focus on recovering their initial investment in order to undertake subsequent projects. However. refer to Understanding The Time Value Of Money.000 Year 4 250.) Internal Rate of Return The internal rate of return (IRR) is the discount rate that would result in a net present value of zero. if liquidity is a vital consideration.000. An IRR which is higher than the weighted average cost of capital suggests that the capital project is a profitable endeavor. Investment Inflows Year 0 -1.000.000 Year 5 300.Investment Inflows Year 0 -1. it is usually considered the least relevant valuation approach. and vice versa.000 The primary advantage of implementing the internal rate of return as a decision making tool is that it provides a benchmark figure for every project that can be assessed in reference to a company's capital structure.000 Since the payback period does not reflect the added value of a capital budgeting decision. there .000 Year 3 250.000 Year 2 250. PB periods are of major importance.000 Year 1 300.000 Year 4 300.00 Year 2 300. Since the NPV of a project is inversely correlated with the discount rate – if the discount rate increases future cash flows become more uncertain and thus become worth less – the benchmark for IRR calculations is the actual rate used by the firm to discount after tax cash flows. The IRR will usually produce the same types of decisions as net present value models and allows firms to compare projects on the basis of returns on invested capital. If the firm's actual discount rate that they use for discounted cash flow models is less than 15% the project should be accepted.000 Year 1 250.000.000 Year 5 15.000 Year 3 300. Despite that the IRR is easy to compute with either a financial calculator or software packages. The IRR rule is as follows: IRR > cost of capital = accept project IRR < cost of capital = reject project In the example below. (To learn more. the IRR is 15%. The internal rate of return does not allow for an appropriate comparison of mutually exclusive projects. Investment Inflows . yet falls short on several key requirements. or there might be multiple internal rates of return. Investment Year 0 -1.7% and 787.000.000 and $1.000 Inflows Year 1 10. In the example below two IRRs exist – 12. The NPV rule states that all projects which have a positive net present value should be accepted while those that are negative should be rejected.000 Year 3 Year 4 Year 5 0 0 0 The IRR is a useful valuation measure when analyzing individual capital budgeting projects. It provides a better valuation alternative to the PB method. These results signal that both capital budgeting projects would increase the value of the firm.are some downfalls to using this metric. assuming a discount rate of 10% project A and project B have respective NPVs of $126. the IRR does not give a true sense of the value that a project will add to a firm – it simply provides a benchmark figure for what projects should be accepted based on the firm's cost of capital. (Use this method to choose which project or investment is right for you.3%. If funds are limited and all positive NPV projects cannot be initiated. NPVs reveal exactly how profitable a project will be in comparison to alternatives. meaning that there are additional cash outflows following the initial investment. And unlike the IRR method. In such a scenario.200.000. Discounting the after tax cash flows by the weighted average cost of capital allows managers to determine whether a project will be profitable or not. not those which are mutually exclusive. In the two examples below. those with the high discounted value should be accepted. Check out Internal Rate Of Return: An Inside Look. an IRR might not exist. Similar to the PB method. Another error arising with the use of IRR analysis presents itself when the cash flow streams from a project are unconventional.000. project B is superior. therefore managers might be able to determine that project A and project B are both beneficial to the firm.000 Year 2 -10.) Net Present Value The net present value approach is the most intuitive and accurate valuation approach to capital budgeting problems. Unconventional cash flows are common in capital budgeting since many projects require future capital outlays for maintenance and repairs.000. but they would not be able to decide which one is better if only one may be accepted. but if the company only has $1 million to invest at the moment. 000. Although the NPV approach is subject to fair criticisms that the value added figure does not factor in the overall magnitude of the project.000 Year 4 300.Year 0 -1. A PI greater than 1 indicated that the NPV is positive while an NPV of less than 1 indicates a negative NPV.000 Year 3 300. The profitability index is calculated by dividing the present value of future cash flows by the initial investment.000 Year 5 3.000 Year 2 -300. (Weighted average cost of capital may be hard to calculate.000 Year 5 300. but it's a solid way to measure investment quality.000. See Investors Need A Good WACC. it allows one to simultaneously compare multiple mutually exclusive projects and even though the discount rate it subject to change. Managers can have the most confidence in their analysis when all three approaches indicate the same course of action. the profitability index (PI).000 Some of the major advantages of the NPV approach include the overall usefulness and easy understandability of the figure in that the NPV provides a direct measure of added profitability. a sensitivity analysis of the NPV can typically signal any overwhelming potential future concerns.000 Investment Year 0 -1. the IRR and PB are often used as well under certain circumstances.000.000 Year 2 300.000 Inflows Year 1 300.000 Year 4 300.000 Year 1 300.) Conclusions Different businesses will use different valuation methods to either accept or reject capital budgeting projects. Although the NPV method is considered the favorable one among analysts.000 Year 3 300. a metric derived from discounted cash flow calculations can easily fix this concern. .