Accounting interview questions and answers by m riaz khan

Accounting
Interview
Question and
Answers
By
M. Riaz Khan (MS-Finance)
Mriazkhan91@gmail.com
(+92-313-9533123)

2 | P a g e B y : M . R i a z K h a n ( + 9 2 - 3 1 3 - 9 5 3 3 1 2 3 , m r i a z k h a n 9 1 @ g m a i l . c o m )
Question1. What Is Financial Accounting?
Answer: Financial accounting gathers and summarizes financial data to prepare financial reports such as
balance sheet and income statement for the organization's management, investors, lenders, suppliers, tax
authorities, and other stakeholders.
Question2. What Is The Role Of Financial Accounting In Business?
Answer: Every business is required by law, in which the business is registered and operated, to maintain
a record of its business transaction and communicate those in the form of financial reports. These reports
are commonly referred to as financial statements.
The users of these financial statements are what we call stakeholders. These are individual, group of
individuals or organization which are directly and indirectly interested in the course of a business which
includes the owner, managers, employees, creditors, the government or general public.
Financial accounting is the accounting process that culminates in the preparation of financial reports of a
business which is used by stakeholders in forming their economic decisions.
The main objective of financial accounting is to provide information regarding the financial condition and
performance of a business entity. This information are reported and communicated in the form of
financial statements.
Additionally, financial accounting shows the results of stewardship of a business management. By looking
at the financial reports, users can interpret how well or bad the business management has operated and
used its resources.
Question3. Who Governs The Financial Reporting Standard?
Answer: Since financial accounting is the process that provides financial reports to the general public,
professionals in the accounting, trade and commerce, have developed and formed an accounting standard
which will serve as the foundation of all accounting process and procedures performed. Such accounting
standard is referred to as the Generally Accepted Accounting Principles (GAAP).
GAAP represents the rules, procedures, practice and standards followed in the preparation and
presentation of the financial statements. Its purpose is to ensure consistency and comparability of
reported financial information of business entities, in order to protect the users or general public, since
they use financial reports in their economic decisions.
Question4. What is the Difference between Financial Accounting and Bookkeeping?
Answer: Financial accounting is different from bookkeeping. Bookkeeping is a branch of financial
accounting which pertains to the procedural process of recording and maintaining the business
transactions. The only function of bookkeeping is to keep the financial record of the business accurate
and complete. On the other hand, financial accounting includes a broader role compared to bookkeeping.
It is not merely procedural in nature but also conceptual. Financial accounting is also concern with the
why, reason or justification of any action adopted. It is responsible not only in the complete and accurate
recording of business transactions but also it ensures that the reported financial statement abides by the
accounting standards, and all other reporting standards, such as the government.

Question5. What Is The Primary Objective Of Financial Accounting?
Answer: The primary objective of the Financial Accounting is to communicate and provide information to the
investors and creditors on the economic activities of the enterprise that will help them in their investment
decisions.
Question6. What Are Financial Statements? Name The Major Financial Statements?
Answer: The Financial statements are the reports that result from the process of accounting which allow
the interested parties to evaluate the profitability and the solvency of the business. The major financial
statements are:
 Profit and Loss Account
 Balance sheet
 Cash flow statement
Question7. What Is The Difference Between Balance Sheet And Profit & Loss Account?
Answer: The balance sheet is one of the most important financial statements of a company. It is reported
to investors at least once per year. It may also be presented quarterly, semiannually or monthly. The
balance sheet provides information on what the company owns (its assets), what it owes (its liabilities),
and the value of the business to its stockholders (the shareholders' equity). The name, balance sheet, is
derived from the fact that these accounts must always be in balance. Assets must always equal the sum of
liabilities and shareholders' equity.
A company's income statement/profit and loss account statement is a record of its earnings or losses for
a given period. It shows all of the money a company earned (revenues) and all of the money a company
spent (expenses) during this period. It also accounts for the effects of some basic accounting principles
such as depreciation. The income statement is important for investors because it's the basic measuring
stick of profitability. A company with little or no income has little or no money to pass on to its investors
in the form of dividends. If a company continues to record losses for a sustained period, it could go
bankrupt. In such a case, both bond and stock investors could lose some or all of their investment. On the
other hand, a company that realizes large profits will have more money to pass on to its investors.
Question8. What Are The Principal Qualitative Characteristics Of Financial Statements?
Answer: The principle characteristics of financial statements are the attributes that make the
information provided in the financial statements useful to the users. The principle qualitative
characteristics are
Understandability: They should be readily understandable to the users. For this purpose users are
deemed to have reasonable knowledge of business and economic activities.
Relevance: To be useful information must be relevant to the decision-making needs of the users.
Reliability: Information is said to be reliable when it is free from errors, bias and can be depended upon
by the users to represent faithfully, which it purports to represent.
Comparability: Users must be able to compare the financial statements of an enterprise through time in
order to identify trends in its financial position and performance.

Question9. What Is Meant By The Quality Of Financial Reporting? What Is Conservatism, And How
Does It Affect The Quality Of Earnings?
Answer: The quality of financial reporting refers to how close the financial statements are to economic
reality. The closer the financial statements are to economic reality, the higher is the quality of financial
reporting. The less that management uses discretionary means to manipulate earnings, the higher the
quality of financial reporting. Conservatism means that management should take great care not to
overstate assets and revenues and not to understate liabilities and expenses. The more conservative
management is in making accounting judgments, the higher will be the quality of financial reporting.
Question10. What Are The Major Constraints On Relevant And Reliable Financial Statements?
Answer: The major constraints on relevant and reliable financial statements are:
Timeliness: If there is undue delay information becomes irrelevant.
Balance between cost and benefit: The benefits derived from information should exceed the cost of
providing it.
Balance between the various qualitative characteristics: In practice it has become necessary to achieve an
appropriate balance between the qualitative characteristics.
True and fair view presentation: There is no clarity in the term true and fair view as required by the
Companies Act. The conceptual framework does not discuss this.
Question11. What Are The Golden Rules Of Accounting?
Answer: The golden Rules of Accounting are:
Debits always equal Credits
Increases do not necessarily equal Decreases
Assets - Liabilities = Owner's Equity (The accounting equation).
Question12. What Is Fundamental Accounting Equation?
Answer: Accounting equation is a mathematical expression used to describe the relationship between
the assets, liabilities and owner's equity of the business model. The basic accounting equation states that
assets equal liabilities and owner's equity, but can be modified by operations applied to both sides of the
equation, e.g., assets minus liabilities equal owner's equity.
Question13. Discuss the GAAP measures used in Pakistan?
Answer: The financial statements are prepared under the historical cost convention, in accordance with
Generally Accepted Accounting Principles (GAAP) comprising of the accounting standards issued by the
Institute of Chartered Accountants of Pakistan and the provisions of the Companies Act, 1984, as adopted
consistently by the company.
All income and expenditure having a material bearing on the financial statements are recognized on the
accrual basis. The preparation of the financial statements in conformity with GAAP requires, that the
management of the company make estimates and assumptions, that affect the reported amounts of
revenue and expenses of the period, reported balances of assets and liabilities and disclosures relating to
contingent assets and liabilities as of the date of the financial statements. Examples of such estimates

include, expected contract costs to be incurred to complete software development, provision for doubtful
debts, future obligations under employee retirement benefit plans and the useful lives of fixed assets.
Actual results could differ from those estimates.
Question14. Tell Us What You Know About Accounts Receivables And Payables?
Answer: Accounts Receivable, normally abbreviated as A/R, is the money that is currently owed to a
company by its customers. The reason why the customers owe money is that the product has been
delivered but has not been paid for yet. Companies routinely buy goods and services from other
companies using credit. Although typically A/R is almost always turned into cash within a short amount
of time, there are instances where a company will be forced to take a write-off for bad accounts
receivable if it has given credit to someone who cannot or will not pay. This is why you will see
something called allowance for bad debt in parentheses beside the accounts receivable number.
Accounts Payable is the money that the company currently owes to its suppliers, its partners and its
employees. Basically, these are the basic costs of doing business that a company, for whatever reason, has
not paid off yet. One company's accounts payable is another company's accounts receivable, which is why
both terms are similarly structured. A company has the power to push out some of its accounts payable,
which often produces a short-term increase in earnings and current assets.
Question15. Tell Me Something About Accounting For Goodwill Finance?
Answer: Goodwill is considered to be one of the largest intangible assets, the value of which companies
want to reflect correctly in their financial statements. Accounting for this asset, poses many challenges
for accountants, as it is an unidentifiable intangible asset.
Question16. Can You Provide Us A Suitable Definition Of Goodwill?
Answer: Goodwill as an intangible asset can be defined from two approaches:
Residuum approach
Under this method, goodwill is taken to be the difference between the purchase price and the fair market
value of an acquired company’s assets.
Excess profits approach
Under this method, the present value of the projected future excess earnings over normal earnings for
similar businesses is recorded as goodwill. Due to uncertainty of future earnings, valuing goodwill using
this method is difficult.
Question17. What Is Debenture Redemption Reserve?
Answer: Every company requires creating debenture redemption reserve for redemption of debentures
out of appropriation of profits every year until redemption. This reserve cannot be utilized by the
company except for the purpose of redemption.
Question18. What Is Deferred Revenue Expenditure?

Answer: Deferred revenue expenditures represent types of assets whose usefulness do not expire in the
year of their occurrence but generally expires in the near future. These types of expenditures are carried
forward and are written off in future accounting periods.
Sometimes, we make some revenues expenditure but it eventually becomes a capital asset (generally of
an intangible nature). Example, if we undertake substantial repairs to the existing building, the
deterioration of the premises may be avoided. If we charge the whole expenditure during the current, the
current year expenses are affecting. However, since the benefit of this expenditure is enjoyed over a
number of years. So, to overcome this only a part of the expenditure is charged current year and the
balance carried forward and written off gradually during the future periods.
Question 19. What Are Contingent Liabilities?
Answer: These are liabilities, which materialize on the happening or non-happening of an event.
Contingent liabilities are not real liabilities and as such do not appear in the liability side of balance sheet.
But are disclosed by way of a footnote in the balance sheet.
Question 20. What is Deferred Revenue Expenditure?
Answer: Deferred Revenue Expenditure is a revenue expenditure which has been incurred during an
accounting year but the benefit of which may be extended to a number of years. And these are charged to
profit and loss account. E.g. Development expenditure, Advertisement etc.

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