Accountancy

Key concepts

Accountant

Accounting period

Accrual

Bookkeeping

Cash and accrual basis

Cash flow forecasting

Chart of accounts

Convergence

Journal

Special journals

Constant item purchasing power accounting

Cost of goods sold

Credit terms

Debits and credits

Double-entry system

Mark-to-market accounting

FIFO and LIFO

GAAP / IFRS

Management Accounting Principles

General ledger

Goodwill

Historical cost

Matching principle

Revenue recognition

Trial balance

Fields of accounting

Cost

Financial

Forensic

Fund

Management

Tax (U.S.)

Financial statements

Balance Sheet

Cash flow statement

Income statement

Statement of retained earnings

Notes

Management discussion and analysis

XBRL

Auditing

Auditor's report

Control self-assessment

Financial audit

GAAS / ISA

Internal audit

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

By Arkady Libman, Managing Director, Wall Street Prep

With the start of a new academic year, we know that finance interviews are again at the forefront of many of your minds. Over the next few months, we’ll be publishing most frequently asked technical finance interview questions and answers across a variety of topics – accounting (in this issue), valuation, corporate finance – to get you prepared.

Requisite plug here: If you are in immediate need of complete help, visit our finance interview prep page, for details on enrolling in prep videos and interview guides. Now without further ado….

COMMON FINANCE INTERVIEW QUESTIONS (AND ANSWERS)

Before we get to accounting questions, here are some interview best practices to keep in mind when getting ready for the big day.

1. Be prepared for technical questions. Many students erroneously believe that if they are not finance/business majors, then technical questions do not apply to them. On the contrary, 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, especially as many finance firms will devote considerable resources to mentor and develop their new employees.

2. One recruiter we’ve spoken to said “while we do not expect liberal arts majors to have a deep mastery of highly technical concepts, we do expect them to understand the basic accounting and finance concepts as they relate to investment banking. Someone who can’t answer basic questions like ‘walk me through a DCF’ has not sufficiently prepared for the interview, in my opinion”.

3. Another added, “Once a knowledge gap is identified, it’s typically very difficult to reverse the direction of the interview.”

4. Keep each of your answers limited to 2 minutes. Longer answers may lose an interviewer, while giving them additional ammunition to go after you with more complicated question on the same topic.

5. It’s ok to say “I don’t know” a few times during the interview. If interviewers think that you’re making up answers, they’ll continue probing you further, which will lead to more creative answers, which will lead to more complicated questions and a slow realization by you that interviewer knows that you don’t really know. This will be followed by uncomfortable silence. And no job offer.

NOW ON TO ACCOUNTING QUESTIONS…

Accounting is the language of business, so don’t underestimate the importance of accounting questions. Some are easy, some are more challenging, but of all of them allow interviewers to gauge your knowledge level without the need to ask more complex valuation/finance

questions.Below we have selected most common accounting questions you should expect to see during the recruiting process.

Q: Why do capital expenditures increase assets (PP&E), while other cash outflows, like paying salary, taxes, etc., do not create any asset, and instead instantly create an expense on the income statement that reduces equity via retained earnings?

A: Capital expenditures are capitalized because of the timing of their estimated benefits – the lemonade stand will benefit the firm for many years. The employees’ work, on the other hand, benefits the period in which the wages are generated only and should be expensed then. This is what differentiates an asset from an expense.

Q: Walk me through a cash flow statement.

A. Start with net income, go line by line through major adjustments (depreciation, changes in working capital and deferred taxes) to arrive at cash flows from operating activities.

Mention capital expenditures, asset sales, purchase of intangible assets, and purchase/sale of investment securities to arrive at cash flow from investing activities.

Mention repurchase/issuance of debt and equity and paying out dividends to arrive at cash flow from financing activities.

Adding cash flows from operations, cash flows from investments, and cash flows from financing gets you to total change of cash.

Beginning-of-period cash balance plus change in cash allows you to arrive at end-of-period cash balance.

Q: What is working capital?

A: Working capital is defined as current assets minus current liabilities; 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.

Q: Is it possible for a company to show positive cash flows but be in grave trouble?

A: Absolutely. Two examples involve unsustainable improvements in working capital (a company is selling off inventory and delaying payables), and another example involves lack of revenues going forward.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.e. increasing accounts receivable, lowering accounts payable), and financial shenanigans.

Q: I buy a piece of equipment, walk me through the impact on the 3 financial statements

A: Initially, there is no impact (income statement); cash goes down, while PP&E goes up (balance sheet), 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); PP&E goes down by depreciation, while retained earnings go down (balance sheet); 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: Why are increases in accounts receivable a cash reduction on the cash flow statement?

A: Since our cash flow statement starts with net income, an increase in accounts receivable is an adjustment to net income to reflect the fact that the company never actually received those funds.

Q: How is the income statement linked to the balance sheet?

A: Net income flows into retained earnings.

Q: What is goodwill?

A: Goodwill is an asset that captures excess of the purchase price over fair market value of an acquired business. Let’s walk through the following example: Acquirer buys Target for $500m in cash. Target has 1 asset: PPE with book value of $100, debt of $50m, and equity of $50m = book value (A-L) of $50m.

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, but is expected to be paid in the future. 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 depreciation expense between book reporting (GAAP) and IRS reporting can lead to differences in income between the two, which ultimately leads to differences in tax expense reported in the financial statements and taxes payable to the IRS.

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.

Differences in revenue recognition, expense recognition (such as warranty expense), and net operating losses (NOLs) can create deferred tax assets.

I hope you enjoyed this article. Please feel free to write me with any comments or recommendations at alibman@wallstreetprep.com.

Best regards,

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.• 13 types of job interview.• 31 job interview tips.• Interview thank you letter.

I. Sample Accounting interview questions

You can ref 150 accounting interview answer samples, answer tips, answer structure … by links below:

1. Tell me about yourself?

2. Why did you leave your last job?

3. What is your greatest weakness?

4. Why do you want to work as an accountant?

5. Why you chose your A Levels for Accounting?

6. What are the qualities that make for a good accountant?

7. How many invoices on average do you handle on a weekly/monthly basis?

8. What are the steps to take before you approve an invoice for payment?

9. Tell me about an invoice discrepancy you discovered and how you resolved it?

10. What are the steps you go through to check your accounting work before submitting it? Give an example of this?

11. Tell me about a time where you took the lead on an accounting project. What steps did you take to make sure that everybody remained focused on the goal?

12. 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. Have you ever been involved in an invoice dispute? How did you manage the problem?

14. Explain the accounts payable cycle?

15. What accounts payable applications are you familiar with?

16. Detail your responsibilities in accounts receivable?

17. What are the most important goals of accounts receivable?

18. What software applications have you used for accounts receivable?

19. What do you consider to be the biggest challenge facing the accounting profession today?

20. Describe the advantages and disadvantages of the different accounting packages/systems you have used recently in your accountant jobs?

21. Give me examples of the accounting reports you have prepared?

Accounts payable

22. What documents are required before verifying invoice? what is the process if the supplier passes an invoice for more amount?

23. What is difference between account payable and bills payable?

24. What is Reconciliation Statement?

25. Why does a company/business require an Accounts payable process?

26. What is the full form of the trem WIRE in wire payment ? Explain the process for making and receiving the payment through WIRE?

27. What is Component Level Default Processing?

28. What entry is recorded when $75.00 worth of supplies are purchased on account?

29. What items would you verify when processing an expense report /invoice for payment?

30. What type of account appear on a post closing trial balance?

31. In the invoice, the value of the tax code is not present but in the idoc the value of the tax code is present. How to populate it in the invoice using the IDOC?

32. Please explain end to end process of accounts payable?

33. What is a Work flow? And take Retail shop as example and explain the Work flow of the Retail shop?

34. What is the difference between Payments-Liquidation(Disbursements) & Dividend Warrants Liquidation?

35. What are the steps involved in finalization?

36. When setting up Purchase items for overhead expenses (G&A expenses) what expense GL account do you use, and what sales account GL do you use? Also, 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?

38. Which area of accounting are you strongest? Which area of accounting would you like to improve?

39. What is the meaning of TDS? How it is charged?

40. What is interest on Capital?

41. What is another name for a real account in accounting? is it a permanent account or a temporary account?

42. What is different between automatic Payments Batches and automatic payments?

43. What are steps to define supplier?

44. What steps would you take before making a payment?

45. What is debit and credit from the customer point of view?

46. What is debit and credit from the banks point of view?

47. What do you understand by Intercompany Settlement?

48. What is the difference between EFT & Wire?

49. What do you mean by Mischarge Correction?

50. How does the payment mechanism work?

51. What is the difference between Consiner and Consinee?

52. What steps would you take before approving an invoice for payment?

53. How to pass a JV when we receive bill including service tax? How to close this a/c?

54. What is 3 Way Matching?

55. What steps would you take before approving an invoice for payment?

56. What is the difference between billable and non-billable expenses?

57. Tell us about an invoice discrepancy that you discovered and how you resolved the discrepancy?

58. what is the difference between debenture and preference share?

59. What is STPI ? why STPI knowledge required in Accounts Payable?

60. What items would you verify when processing an expense report / invoice for payment?

61. What items of information do you need before you can approve an invoice for payment?

62. Tell us about an invoice discrepancy that you discovered and how you resolved the discrepancy?

63. Why does a company/business require an Accounts payables process?

64. Which are the main MIS Reports of an accounts department & what the format of preparing the MIS?

Accounts receivables

65. What is total flow of Account Receivables?

66. After receiving Payment from Customer, What is next step till finalization?

67. What is Reconciliation?

68. Explain about Accounts Receivables in Accounting?

69. Deferred Payments are usually only accepted on partial orders that are?

70. What is reconciliation statement and investment banking?

71. What are the goals of Accounts receivable?

72. What are the powerful software that could be used for doing efficient Accounts receivable?

73. Why is Capital amount put in Liabilities and not in Assets?

74. What is the difference between back end collections and front end collections?

75. What are examples of deferred revenue expenditure?

76. What is effective collection?

77. What is the table that is used for aging bucket report, what is the main purpose of this report?

78. What is the Auto Invoice? What are the setup Steps for Auto Invoice?

79. What is the difference between finance and accounts? most of the companies having a different section like finance and accounts. why they aren’t had only single section neither finance nor accounts?

80. Who is responsible for maintaining the Accounts receivable in an organization?

81. What is the advantage of maintaining Accounts receivable?

82. What are the issues related with Accounts receivable?

83. What are the components or materials used by Accounts receivable departments?

84. What is the difference between debenture holders and creditors?

85. Is there a report to search for invoices by Payment Term and Due Dates?

List of fixed assets interview questions

86. Based on Internal Revenue Service rules, what criteria distinguish a consultant from an employee?87. What experience have you had in payroll?88. What are the activities present in payroll task?

89. What is Payroll Disbursements Journal?

90. What are the steps in Payroll Management?

91. What is the software efficient for carrying out payroll tasks?

92. What is the difference between paycheck and Pays lip?

93. How advantage is payroll for small business?

94. What experience have you had in fixed assets accounting?

95. What are the various means of calculating depreciation?

Cashier/Accounting

96. What is meant by discount eligibility of a buyer?

97. What is the difference between discount and rebate?

98. What do you have to prepare before working?

99. Give the difference between a pass book and a cash book?

100. What do you mean by Money Laundering?

101. What is Salary TDS & TDS?

102. What do you have to do after finishing work shift?

103. What is the deffred revenue expenditure and its treatment in accounts?

104. What is MIS Report ? How do you prepare it?

105. What is the difference between net income and free cash flow?

106. Tell something about your experience as a cashier?

107. What is meant by dealers for treasury?

108. What is Cash Book and Pass Book?

109. What is meant by Deferred Revenue Expenditure?

110. What software do you use for cashier?

111. What is the difference between core banking and retail banking?

112. Explain discount eligibility of a buyer?

113. Differentiate between discount and rebate?

114. Tel me about cashier process?

115. What are Bill of Lading & Shipping Bill. What is the difference between them?

Cost accounting

116. What is the difference between Expenses & Expenditure?

117. Tell us about your experience in cost accounting?

118. Describe some of the methods used to allocate support costs?

119. What is charge back?

120. What is the purpose of charge back?

121. Have you implemented or administered a charge back system?

122. Name some components of an effective charge back system?

123. What are fixed costs?

124. What are variable costs?

125. What is marginal cost?

126. Tell me the information about cost sheets?

127. How to make a table for to calculate the prime cost, factory cost, total cost of production and cost of sales?

128. What is meant by cost accounting?

129. Why is interest on loan not included in cost sheet?

130. What does the name costing mean and what is the importance of costing?

131. What is BEP? BEP-Break Event Point. It indicates no Loss and no Profit?

132. Tell us about your experience in cost accounting?

133. Describe some of the methods used to allocate support costs?

134. What is charge back?

135. Explain fixed cost, variable cost and marginal cost?

136. What is Break Even Point? What does it signify?

137. What is the purpose of charge back?

138. What is MIS report and do you prepare it?

General accountant

139. State AP & AR. Explain the contemporary applications of AP.

140. Define a shadow balance sheet. Tell us about its usage and advantages.

141. Explain the steps of generating a final account. What factors should be considered during the preparation of such an account?

142. Give any three major differences between management accountancy and cost accountancy.

143. What do you understand from the term” cash flow”? Explain the procedure to put non- current lease payment on a cash flow statement.

144. What do you understand from management accountancy? Explain the various functions of management accountancy.

145. Define control account. Explain the procedure of creating a control account.

146. Explain the terms: Provision, Accrual and Reserve. Give an example for each.

147. Differentiate between a check and cash payment. Explain the official procedure of cancelling a cheque.

148. How do you explain accounts receivable and accounts payable? What are the different strategies available to control both types of accounts?

149. Tell us the procedure of a liability side of the balance sheet.

150. 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, Business

Capital budgeting involves choosing projects that add value to the firm. This can involve almost

anything from acquiring a lot of land to purchasing a new truck or replacing old machinery. Businesses,

specifically corporations, are typically required, or at least recommended, to undertake those projects

which will increase profitability and thus enhance shareholders' wealth.Tutorial: Financial Concepts

and Capital Budgeting

When a firm is presented with a capital budgeting decision, one of its first tasks is to determine

whether or not the project will prove to be profitable. The net present value (NPV), internal rate of

return (IRR) and payback period (PB) methods are the most common approaches to project selection.

Although an ideal capital budgeting solution is such that all three metrics will indicate the same

decision, these approaches will often produce contradictory results. Depending on managements'

preferences and selection criteria, more emphasis will be put on one approach over another.

Nonetheless, there are common advantages and disadvantage associated with these widely used

valuation methods.

Payback Period

The payback period calculates the length of time required to recoup the original investment. For

example, if a capital budgeting projects requires an initial cash outlay of $1 million, the PB reveals how

many years are required to for the cash inflows to equate to the one million dollar outflow. A short PB

period is preferred as it indicated that the project will "pay for itself" within a smaller time frame.

In the following example, the PB period would be three and one-third of a year, or three years and four

months.

Investmen

t Inflows

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

-1,000,000 300,00 300,000 300,000 300,000 300,000

Payback periods are typically used when liquidity presents a major concern. If a company only has a

limited amount of funds, they might be able to only undertake one major project at a time. Therefore,

management will heavily focus on recovering their initial investment in order to undertake subsequent

projects. Another major advantage of using the PB is that it is easy to calculate once the cash flow

forecasts have been established.

There are two major drawbacks to using the PB metric to determine capital budgeting decisions.

Firstly, the payback period does not account for time value of money (TVM). Simply calculating the PB

provides a metric which places the same emphasis on payments received in year one and year two.

Such an error violates one of the basic fundamental principles of finance. Luckily, this problem can

easily be amended by implementing a discounted payback period model. Basically, 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 second problem is more serious. Both, payback periods and discounted payback periods ignore

the cash flows that occur towards the end of a project's life, such as the salvage value. Thus the PB is

not a direct measure of profitability. The following example has a PB period of four years, which is

worse than that of the previous example, but the large $15,000,000 cash inflow occurring in year five

is ignored for the purposes of this metric.

Investmen

t Inflows

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

-1,000,000 250,000 250,000 250,000 250,000 15,000,000

Since the payback period does not reflect the added value of a capital budgeting decision, it is usually

considered the least relevant valuation approach. However, if liquidity is a vital consideration, PB

periods are of major importance. (To learn more, refer to Understanding The Time Value Of Money.)

Internal Rate of Return

The internal rate of return (IRR) is the discount rate that would result in a net present value of zero.

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. An IRR which is higher

than the weighted average cost of capital suggests that the capital project is a profitable endeavor,

and vice versa.

The IRR rule is as follows:

IRR > cost of capital = accept project

IRR < cost of capital = reject project

In the example below, the IRR is 15%. If the firm's actual discount rate that they use for discounted

cash flow models is less than 15% the project should be accepted.

Investmen

t Inflows

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

-1,000,000 300,00 300,000 300,000 300,000 300,000

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. 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.

Despite that the IRR is easy to compute with either a financial calculator or software packages, there

are some downfalls to using this metric. Similar to the PB method, 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. The internal rate of return does not allow for an

appropriate comparison of mutually exclusive projects; therefore managers might be able to

determine that project A and project B are both beneficial to the firm, but they would not be able to

decide which one is better if only one may be accepted.

Another error arising with the use of IRR analysis presents itself when the cash flow streams from a

project are unconventional, meaning that there are additional cash outflows following the initial

investment. Unconventional cash flows are common in capital budgeting since many projects require

future capital outlays for maintenance and repairs. In such a scenario, an IRR might not exist, or there

might be multiple internal rates of return. In the example below two IRRs exist – 12.7% and 787.3%.

Investment Inflows

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

-1,000,000 10,000,000 -10,000,000 0 0 0

The IRR is a useful valuation measure when analyzing individual capital budgeting projects, not those

which are mutually exclusive. It provides a better valuation alternative to the PB method, yet falls

short on several key requirements. (Use this method to choose which project or investment is right for

you. Check out Internal Rate Of Return: An Inside Look.)

Net Present Value

The net present value approach is the most intuitive and accurate valuation approach to capital

budgeting problems. 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. And unlike the IRR method,

NPVs reveal exactly how profitable a project will be in comparison to alternatives. 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. If funds are limited and all positive NPV projects cannot be initiated, those

with the high discounted value should be accepted.

In the two examples below, assuming a discount rate of 10% project A and project B have respective

NPVs of $126,000 and $1,200,000. These results signal that both capital budgeting projects would

increase the value of the firm, but if the company only has $1 million to invest at the moment, project

B is superior.

Investment Inflows

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

-1,000,000 300,000 300,000 300,000 300,000 300,000

Investment Inflows

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

-1,000,000 300,000 -300,000 300,000 300,000 3,000,000

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, it

allows one to simultaneously compare multiple mutually exclusive projects and even though the

discount rate it subject to change, a sensitivity analysis of the NPV can typically signal any

overwhelming potential future concerns. Although the NPV approach is subject to fair criticisms that

the value added figure does not factor in the overall magnitude of the project, the profitability index

(PI), a metric derived from discounted cash flow calculations can easily fix this concern.

The profitability index is calculated by dividing the present value of future cash flows by the initial

investment. A PI greater than 1 indicated that the NPV is positive while an NPV of less than 1 indicates

a negative NPV. (Weighted average cost of capital may be hard to calculate, but it's a solid way to

measure investment quality. See Investors Need A Good WACC.)

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, the IRR and PB

are often used as well under certain circumstances. Managers can have the most confidence in their

analysis when all three approaches indicate the same course of action.