Accounting Basics and Interview Questions Answers

Rumon Sazzad
ACCOUNTING BASICS AND INTERVIEW QUESTIONS ANSWERS
ACCOUNTING BASICS AND INTERVIEW QUESTIONS

ANSWERS
1. Definition of accounting: “the art of recording, classifying and summarizing in a significant

manner and in terms of money, transactions and events which are, in part at least of a financial
character and interpreting the results there of”.
2. Book keeping: It is mainly concerned with recording of financial data relating to the business
operations in a significant and orderly manner.
3. Concepts of accounting:
A. Separate entity concept
B. Going concern concept
C. Money measurement concept
D. Cost concept
E. Dual aspect concept
F. Accounting period concept
G. Periodic matching of costs and revenue concept
H. Realization concept.
4 Conventions of accounting:
A. Conservatism
B. Full disclosure
C. Consistency
D. Materiality
5. Systems of book keeping:

A. single entry system
B. double entry system
6. Systems of accounting:
A. Cash system accounting

B. Mercantile system of accounting.
7. Principles of accounting:
A. Personal a/c: Debit the receiver
Credit the giver
B. Real a/c: Debit what comes in

Credit what goes out
C. Nominal a/c: Debit all expenses and losses
Credit all gains and incomes
8. Meaning of journal: Journal means chronological record of transactions.

9. Meaning of ledger: Ledger is a set of accounts. It contains all accounts of the business enterprise
whether real, nominal, personal.
1
https://www.facebook.com/groups/BangladeshBankExamAid/
Rumon Sazzad
10. Posting: It means transferring the debit and credit items from the journal to their respective
accounts in the ledger.
11. Trial balance: Trial balance is a statement containing the various ledger balances on a particular
date.
12. Credit note: The customer when returns the goods get credit for the value of the goods
returned. A credit note is sent to him intimating that his a/c has been credited with the value of the
goods returned.
13. Debit note: When the goods are returned to the supplier, a debit note is sent to him indicating
that his a/c has been debited with the amount mentioned in the debit note.
14. Contra entry: Which accounting entry is recorded on both the debit and credit side of the
cashbook is known as the contra entry.
15. Petty cash book: Petty cash is maintained by business to record petty cash expenses of the
business, such as postage, cartage, stationery, etc.
16. Promisory note: an instrument in writing containing an unconditional undertaking signed by the
maker, to pay certain sum of money only to or to the order of a certain person or to the barer of the
instrument.
17. Cheque: A bill of exchange drawn on a specified banker and payable on demand.
18. Stale Cheque: A stale cheque means not valid of cheque that means more than six months the
cheque is not valid.
20. Bank reconciliation statement: It is a statement reconciling the balance as shown by the bank
passbook and the balance as shown by the Cash Book. Obj: to know the difference & pass necessary
correcting, adjusting entries in the books.
21. Matching concept: Matching means requires proper matching of expense with the revenue.
22. Capital income: The term capital income means an income which does not grow out of or
pertain to the running of the business proper.
23. Revenue income: The income, which arises out of and in the course of the regular business
transactions of a concern.
24. Capital expenditure: It means an expenditure which has been incurred for the purpose of
obtaining a long term advantage for the business.
25. Revenue expenditure: An expenditure that incurred in the course of regular business
transactions of a concern.
26. Differed revenue expenditure: An expenditure, which is incurred during an accounting period
but is applicable further periods also. Eg: heavy advertisement.
27. Bad debts: Bad debts denote the amount lost from debtors to whom the goods were sold on
credit.
28. Depreciation: Depreciation denotes gradually and permanent decrease in the value of asset due
to wear and tear, technology changes, laps of time and accident.
29. Fictitious assets: These are assets not represented by tangible possession or property. Examples
of preliminary expenses, discount on issue of shares, debit balance in the profit And loss account
when shown on the assets side in the balance sheet.
30. Intanglbe Assets: Intangible assets mean the assets which is not having the physical appearance.
And it’s have the real value, it shown on the assets side of the balance sheet.
31. Accrued Income: Accrued income means income which has been earned by the business during
the accounting year but which has not yet been due and, therefore, has not been received.
32. Outstanding Income: Outstanding Income means income which has become due during the
accounting year but which has not so far been received by the firm.
33. Suspense account: The suspense account is an account to which the difference in the trial
balance has been put temporarily.
34. Depletion: It implies removal of an available but not replaceable source, Such as extracting coal
from a coal mine.
35. Amortization: The process of writing of intangible assets is term as amortization.
2
Rumon Sazzad
36. Dilapidations: The term dilapidations to damage done to a building or other property during
tenancy.
37. Capital employed: The term capital employed means sum of total long term funds employed in
the business. i.e.
(Share capital+ reserves & surplus +long term loans – (non business assets + fictitious assets)
38. Equity shares: Those shares which are not having pref. rights are called equity shares.
39. Pref.shares: Those shares which are carrying the pref.rights are called pref. shares Pref.rights in
respect of fixed dividend. Pref.right to repayment of capital in the event of company winding up.
40. Leverage: It is a force applied at a particular work to get the desired result.
41. Operating leverage: the operating leverage takes place when a changes in revenue greater
changes in EBIT.
42. Financial leverage: it is nothing but a process of using debt capital to increase the rate of return
on equity
43. Combine leverage: It is used to measure of the total risk of the firm = operating risk + financial
risk.
44. Joint venture: A joint venture is an association of two or more the persons who combined for
the execution of a specific transaction and divide the profit or loss their of an agreed ratio.
45. Partnership: Partnership is the relation b/w the persons who have agreed to share the profits of
business carried on by all or any of them acting for all.
46. Factoring: It is an arrangement under which a firm (called borrower) receives advances against
its receivables, from financial institutions (called factor)
47. Capital reserve: The reserve which transferred from the capital gains is called capital reserve.
48. General reserve: the reserve which is transferred from normal profits of the firm is called
general reserve
49. Free Cash: The cash not for any specific purpose free from any encumbrance like surplus cash.
50. Minority Interest: Minority interest refers to the equity of the minority shareholders in a
subsidiary company.
51. Capital receipts: Capital receipts may be defined as “non-recurring receipts from the owner of
the business or lender of the money crating a liability to either of them.
52. Revenue receipts: Revenue receipts may defined as “A recurring receipts against sale of goods in
the normal course of business and which generally the result of the trading activities”.
53. Meaning of Company: A company is an association of many persons who contribute money or
money’s worth to common stock and employs it for a common purpose. The common stock so
contributed is denoted in money and is the capital of the company.
54. Types of a company:
1. Statutory companies
2. Government company
3. Foreign company
4. Registered companies:
A. Companies limited by shares
B. Companies limited by guarantee
C. Unlimited companies
D. private company
E. public company
55. Private company: A private co. is which by its AOA: Restricts the right of the members to transfer
of shares Limits the no. Of members 50. Prohibits any Invitation to the public to subscribe for its
shares or debentures.
56. Public company: A company, the articles of association of which does not contain the requisite
restrictions to make it a private limited company, is called a public company.
3
Rumon Sazzad
57. Characteristics of a company:

> Voluntary association
> Separate legal entity
> Free transfer of shares
> Limited liability
> Common seal
> Perpetual existence.
58. Formation of company:
> Promotion
> Incorporation
> Commencement of business
59. Equity share capital: The total sum of equity shares is called equity share capital.
60. Authorized share capital: It is the maximum amount of the share capital, which a company can
raise for the time being.
61. Issued capital: It is that part of the authorized capital, which has been allotted to the public for
subscriptions.
62. Subscribed capital: it is the part of the issued capital, which has been allotted to the public
63. Called up capital: It has been portion of the subscribed capital which has been called up by the
company.
64. Paid up capital: It is the portion of the called up capital against which payment has been
received.
65. Debentures: Debenture is a certificate issued by a company under its seal acknowledging a debt
due by it to its holder.
66. Cash profit: cash profit is the profit it is occurred from the cash sales.
67. Deemed public Ltd. Company: A private company is a subsidiary company to public company it
satisfies the following terms/conditions Sec 3(1)3:
1. Having minimum share capital 5 lakhs
2. Accepting investments from the public
3. No restriction of the transferable of shares
4. No restriction of no. of members.
5. Accepting deposits from the investors
68. Secret reserves: Secret reserves are reserves the existence of which does not appear on the face
of balance sheet. In such a situation, net assets position of the business is stronger than that
disclosed by the balance sheet.
These reserves are created by:
1. Excessive depot an asset, excessive over-valuation of a liability.
2. Complete elimination of an asset, or under valuation of an asset.
69. Provision: provision usually means any amount written off or retained by way of providing
depreciation, renewals or diminutions in the value of assets or retained by way of providing for any
known liability of which the amount cannot be determined with substantial accuracy.
70. Reserve: The provision in excess of the amount considered necessary for the purpose it was
originally made is also considered as reserve Provision is charge against profits while reserves is an
appropriation of profits Creation of reserve increase proprietor’s fund while creation of provisions
decreases his funds in the business.
71. Reserve fund: The term reserve fund means such reserve against which clearly investment etc.,
72. Undisclosed reserves: Sometimes a reserve is created but its identity is merged with some other
a/c or group of accounts so that the existence of the reserve is not known such reserve is called an
undisclosed reserve.
4
Rumon Sazzad
73. Finance management: Financial management deals with procurement of funds and their
effective utilization in business.
74. Objectives of financial management: financial management having two objectives that Is:
1. Profit maximization: The finance manager has to make his decisions in a manner so that the
profits of the concern are maximized.
2. Wealth maximization: Wealth maximization means the objective of a firm should be to maximize
its value or wealth, or value of a firm is represented by the market price of its common stock.
75. Functions of financial manager:
> Investment decision
> Dividend decision
> Finance decision
> Cash management decisions
> Performance evaluation
> Market impact analysis
76. Time value of money: The time value of money means that worth of a rupee received today is
different from the worth of a rupee to be received in future.
77. Capital structure: It refers to the mix of sources from where the long-term funds required in a
business may be raised; in other words, it refers to the proportion of debt, preference capital and
equity capital.
78. Optimum capital structure: Capital structure is optimum when the firm has a combination of
equity and debt so that the wealth of the firm is maximum.
79. Wacc: It denotes weighted average cost of capital. It is defined as the overall cost of capital
computed by reference to the proportion of each component of capital as weights.
80. Financial break-even point: It denotes the level at which a firm’s EBIT is just sufficient to cover
interest and preference dividend.
81. Capital budgeting: Capital budgeting involves the process of decision making with regard to
investment in fixed assets. Or decision making with regard to investment of money in longterm
projects.
82. Payback period: Payback period represents the time period required for complete recovery of
the initial investment in the project.
83. ARR: Accounting or average rates of return means the average annual yield on the project.
84. NPV: The Net present value of an investment proposal is defined as the sum of the present
values of all future cash inflows less the sum of the present values of all cash out flows associated
with the proposal.
85. Profitability index: Where different investment proposal each involving different initial
investments and cash inflows are to be compared.
86. IRR: Internal rate of return is the rate at which the sum total of discounted cash inflows equals
the discounted cash out flow.
87. Treasury management: It means it is defined as the efficient management of liquidity and
financial risk in business.
88. Concentration banking: It means identify locations or places where customers are placed and
open a local bank a/c in each of these locations and open local collection canter.
89. Marketable securities: Surplus cash can be invested in short term instruments in order to earn
interest.
90. Ageing schedule: In an ageing schedule the receivables are classified according to their age.
91. Maximum permissible bank finance (MPBF): It is the maximum amount that banks can lend a
borrower towards his working capital requirements.
5
Rumon Sazzad
92. Commercial paper: A cp is a short term promissory note issued by a company, negotiable by
endorsement and delivery, issued at a discount on face value as may be determined by the issuing
company.
93. Bridge finance: It refers to the loans taken by the company normally from commercial banks for
a short period pending disbursement of loans sanctioned by the financial institutions.
94. Venture capital: It refers to the financing of high-risk ventures promoted by new qualified
ntrepreneurs who require funds to give shape to their ideas.
95. Debt securitization: It is a mode of financing, where in securities are issued on the basis of a
package of assets (called asset pool).
96. Lease financing: Leasing is a contract where one party (owner) purchases assets and permits its
views by another party (lessee) over a specified period
97. Trade Credit: It represents credit granted by suppliers of goods, in the normal course of business.
98. Over draft: Under this facility a fixed limit is granted within which the borrower allowed to
overdraw from his account.
99. Cash credit: It is an arrangement under which a customer is allowed an advance up to certain
limit against credit granted by bank.
100. Clean overdraft: It refers to an advance by way of overdraft facility, but not back by any
tangible security.
101. Share capital: The sum total of the nominal value of the shares of a company is called share
capital.
102. Funds flow statement: It is the statement deals with the financial resources for running
business activities. It explains how the funds obtained and how they used.
103. Sources of funds: There are two sources of funds internal sources and external sources. Internal
source: Funds from operations is the only internal sources of funds and some important points add
to it they do not result in the outflow of funds
(a) Depreciation on fixed assets
(b) Preliminary expenses or goodwill written off, Loss on sale of fixed assets Deduct the following
items, as they do not increase the funds:
Profit on sale of fixed assets, profit on revaluation Of fixed assets
External sources: (a) Funds from long-term loans
(b)Sale of fixed assets
(c) Funds from increase in share capital
104. Application of funds: (a) Purchase of fixed assets (b) Payment of dividend (c)Payment of tax
liability (d) Payment of fixed liability
105. ICD (Inter corporate deposits): Companies can borrow funds for a short period. For example 6
months or less from another company which have surplus liquidity? Such deposits made by one
company in another company are called ICD.
106. Certificate of deposits: The CD is a document of title similar to a fixed deposit receipt issued by
banks there is no prescribed interest rate on such CDs it is based on the prevailing market
conditions.
107. Public deposits: It is very important source of short term and medium term finance. The
company can accept PD from members of the public and shareholders. It has the maturity period of
6 months to 3 years.
108. Euro issues: The euro issues means that the issue is listed on a European stock Exchange. The
subscription can come from any part of the world except India.
109. GDR (Global depository receipts): A depository receipt is basically a negotiable certificate,
dominated in us dollars that represents a non-US company publicly traded in local currency equity
shares.
6
Rumon Sazzad
111. Commercial banks: Commercial banks extend foreign currency loans for international
operations, just like rupee loans. The banks also provided overdraft.
112. Development banks: It offers long-term and medium term loans including foreign currency
loans
113. International agencies: International agencies like the IFC,IBRD,ADB,IMF etc. provide indirect
assistance for obtaining foreign currency.
114. Seed capital assistance: The seed capital assistance scheme is desired by the IDBI for
professionally or technically qualified entrepreneurs and persons possessing relevantexperience and
skills and entrepreneur traits.
115. Unsecured loans: It constitutes a significant part of long-term finance available to an
enterprise.
116. Cash flow statement: It is a statement depicting change in cash position from one period to
another.
117. Sources of cash:
Internal sources
(a)Depreciation
(b)Amortization
(c)Loss on sale of fixed assets
(d)Gains from sale of fixed assets
(e) Creation of reserves
External sources-
(a)Issue of new shares
(b)Raising long term loans
(c)Short-term borrowings
(d)Sale of fixed assets, investments
118. Application of cash:
(a) Purchase of fixed assets
(b) Payment of long-term loans
(c) Decrease in deferred payment liabilities
(d) Payment of tax, dividend
(e) Decrease in unsecured loans and deposits
119. Budget: It is a detailed plan of operations for some specific future period. It is an estimate
prepared in advance of the period to which it applies.
120. Budgetary control: It is the system of management control and accounting in which all
operations are forecasted and so for as possible planned ahead, and the actual results compared
with the forecasted and planned ones.
121. Cash budget: It is a summary statement of firm’s expected cash inflow and outflow over a
specified time period.
122. Master budget: A summary of budget schedules in capsule form made for the purpose of
presenting in one report the highlights of the budget forecast.
123. Fixed budget: It is a budget, which is designed to remain unchanged irrespective of the level of
activity actually attained.
124. Zero- base- budgeting: It is a management tool which provides a systematic method for
evaluating all operations and programmes, current of new allows for budget reductions and
expansions in a rational inner and allows reallocation of source from low to high priority programs.
125. Goodwill: The present value of firm’s anticipated excess earnings.
126. BRS: It is a statement reconciling the balance as shown by the bank pass book and balance
shown by the cash book.
7
Rumon Sazzad
127. Objective of BRS: The objective of preparing such a statement is to know the causes of
difference between the two balances and pass necessary correcting or adjusting entries in the books
of the firm.
128. Responsibilities of accounting: It is a system of control by delegating and locating the
Responsibilities for costs.
129. Profit centre: A centre whose performance is measured in terms of both the expense incurs
and revenue it earns.
130. Cost centre: A location, person or item of equipment for which cost may be ascertained and
used for the purpose of cost control.
131. Cost: The amount of expenditure incurred on to a given thing.
132. Cost accounting: It is thus concerned with recording, classifying, and summarizing costs for
determination of costs of products or services planning, controlling and reducing such costs and
furnishing of information management for decision making.
133. Elements of cost:

(A) Material
(B) Labour
(C) Expenses
(D) Overheads
134. Components of total costs: (A) Prime cost (B) Factory cost
(C)Total cost of production (D) Total c0st
135. Prime cost: It consists of direct material direct labour and direct expenses. It is also known as
basic or first or flat cost.
136. Factory cost: It comprises prime cost, in addition factory overheads which include cost of
indirect material indirect labour and indirect expenses incurred in factory. This cost is also known as
works cost or production cost or manufacturing cost.
137. Cost of production: In office and administration overheads are added to factory cost, office cost
is arrived at.
138. Total cost: Selling and distribution overheads are added to total cost of production to get the
total cost or cost of sales.
139. Cost unit: A unit of quantity of a product, service or time in relation to which costs may be
ascertained or expressed.
140.Methods of costing: (A)Job costing (B)Contract costing (C)Process costing (D)Operation costing
(E)Operating costing (F)Unit costing (G)Batch costing.
141. Techniques of costing: (a) marginal costing (b) direct costing (c) absorption costing (d) uniform
costing.
142. Standard costing: standard costing is a system under which the cost of the product is
determined in advance on certain predetermined standards.
143. Marginal costing: it is a technique of costing in which allocation of expenditure to production is
restricted to those expenses which arise as a result of production, i.e., materials, labour, direct
expenses and variable overheads.
144. Derivative: derivative is product whose value is derived from the value of one or more basic
variables of underlying asset.
145. Forwards: a forward contract is customized contracts between two entities were settlement
takes place on a specific date in the future at today’s pre agreed price.
146. Futures: A future contract is an agreement between two parties to buy or sell an asset at a
certain time in the future at a certain price. Future contracts are standardized exchange traded
contracts.
147. Options: An option gives the holder of the option the right to do something. The option holder
option may exercise or not.
8
Rumon Sazzad
148. Call option: A call option gives the holder the right but not the obligation to buy an asset by a
certain date for a certain price.
149. Put option: A put option gives the holder the right but not obligation to sell an asset by a
certain date for a certain price.
150. Option price: Option price is the price which the option buyer pays to the option seller. It is also
referred to as the option premium.
151. Expiration date: The date which is specified in the option contract is called expiration date.
152. European option: It is the option at exercised only on expiration date itself.
153. Basis: Basis means future price minus spot price.
154. Cost of carry: The relation between future prices and spot prices can be summarized in terms of
what is known as cost of carry.
155. Initial margin: The amount that must be deposited in the margin a/c at the time of first entered
into future contract is known as initial margin.
156 Maintenance margin: This is somewhat lower than initial margin.
157. Mark to market: In future market, at the end of the each trading day, the margin a/c is adjusted
to reflect the investors’ gains or loss depending upon the futures selling price. This is called mark to
market.
158. Baskets: basket options are options on portfolio of underlying asset.
159. Swaps: swaps are private agreements between two parties to exchange cash flows in the future
according to a pre agreed formula.
160. Impact cost: Impact cost is cost it is measure of liquidity of the market. It reflects the costs
faced when actually trading in index.
161. Hedging: Hedging means minimize the risk.
162. Capital market: Capital market is the market it deals with the long term investment funds. It
consists of two markets 1.primary market 2.secondary market.
163. Primary market: Those companies which are issuing new shares in this market. It is also called
new issue market.
164. Secondary market: Secondary market is the market where shares buying and selling. In India
secondary market is called stock exchange.
165. Arbitrage: It means purchase and sale of securities in different markets in order to profit from
price discrepancies. In other words arbitrage is a way of reducing risk of loss caused by price
fluctuations of securities held in a portfolio.
166. Meaning of ratio: Ratios are relationships expressed in mathematical terms between figures
which are connected with each other in same manner.
167. Activity ratio: It is a measure of the level of activity attained over a period.
168. Mutual fund: A mutual fund is a pool of money, collected from investors, and is invested
according to certain investment objectives.
169. Characteristics of mutual fund: Ownership of the MF is in the hands of the of the investors MF
managed by investment professionals The value of portfolio is updated every day
170. Advantage of MF to investors: Portfolio diversification Professional management Reduction in
risk Reduction of transaction casts Liquidity Convenience and flexibility
171. Net asset value: the value of one unit of investment is called as the Net Asset Value
172. Open-ended fund: open ended funds means investors can buy and sell units of fund, at NAV
related prices at any time, directly from the fund this is called open ended fund.
173. Close ended funds: close ended funds means it is open for sale to investors for a specific
period, after which further sales are closed. Any further transaction for buying the units or
repurchasing them, happen, in the secondary markets.
174. Dividend option: investors who choose a dividend on their investments, will receive dividends
from the MF, as when such dividends are declared.
9
Rumon Sazzad
175. Growth option: investors who do not require periodic income distributions can be choose the
growth option.
176. Equity funds: equity funds are those that invest pre-dominantly in equity shares of company.
177. Types of equity funds: Simple equity funds Primary market funds Sectoral funds Index funds
178. Sectoral funds: Sectoral funds choose to invest in one or more chosen sectors of the equity
markets.
179. Index funds: The fund manager takes a view on companies that are expected to perform well,
and invests in these companies
180. Debt funds: the debt funds are those that are pre-dominantly invest in debt securities.
181. Liquid funds: the debt funds invest only in instruments with maturities less than one year.
182. Gilt funds: gilt funds invests only in securities that are issued by the GOVT. and therefore does
not carry any credit risk.
183. Balanced funds: Funds that invest both in debt and equity markets are called balanced funds.
184. Sponsor: sponsor is the promoter of the MF and appoints trustees, custodians and the AMC
with prior approval of SEBI.
185. Trustee: Trustee is responsible to the investors in the MF and appoint the AMC for managing
the investment portfolio.
186. AMC: the AMC describes Asset Management Company; it is the business face of the MF, as it
manages all the affairs of the MF.
187. R & T Agents: the R&T agents are responsible for the investor servicing functions, as they
maintain the records of investors in MF.
188. Custodians: Custodians are responsible for the securities held in the mutual fund’s portfolio.
189. Scheme takes over: if an existing MF scheme is taken over by another AMC, it is called as
scheme take over.
190. Meaning of load: Load is the factor that is applied to the NAV of a scheme to arrive at the price.
192. Market capitalization: market capitalization means number of shares issued multiplied with
market price per share.
193. Price earnings ratio: The ratio between the share price and the post tax earnings of company is
called as price earnings ratio.
194. Dividend yield: The dividend paid out by the company, is usually a percentage of the face value
of a share.
195. Market risk: It refers to the risk which the investor is exposed to as a result of adverse
movements in the interest rates. It also referred to as the interest rate risk.
196. Re-investment risk: It the risk which an investor has to face as a result of a fall in the interest
rates at the time of reinvesting the interest income flows from the fixed income security.
197. Call risk: Call risk is associated with bonds have an embedded call option in them. This option
hives the issuer the right to call back the bonds prior to maturity.
198. Credit risk: Credit risk refers to the probability that a borrower could default on a commitment
to repay debt or band loans
199. Inflation risk: Inflation risk reflects the changes in the purchasing power of the cash flows
resulting from the fixed income security.
200. Liquid risk: It is also called market risk, it refers to the ease with which bonds could be traded in
the market.
201. Drawings: Drawings denotes the money withdrawn by the proprietor from the business for his
personal use.
202. Outstanding Income: Outstanding Income means income which has become due during the
accounting year but which has not so far been received by the firm.
203. Outstanding Expenses: Outstanding Expenses refer to those expenses which have become due
during the accounting period for which the Final Accounts have been prepared but have not yet
been paid.
10
Rumon Sazzad
204. Closing stock: The term closing stock means goods lying unsold with the businessman at the
end of the accounting year.
205. Methods of depreciation:
1. Unirorm charge methods:
a. Fixed installment method
b .Depletion method
c. Machine hour rate method.
2. Declining charge methods:
a. Diminishing balance method
b. Sum of years digits method
c. Double declining method
3. Other methods:
a. Group depreciation method
b. Inventory system of depreciation
c. Annuity method
d. Depreciation fund method
e. Insurance policy method.
206. Accrued Income: Accrued Income means income which has been earned by the business during
the accounting year but which has not yet become due and, therefore, has not been received.
207. Gross profit ratio: it indicates the efficiency of the production/trading operations.
Formula : Gross profit
-------------------X100
Net sales
208. Net profit ratio: it indicates net margin on sales
Formula: Net profit
--------------- X 100
Net sales
209. Return on share holders’ funds: it indicates measures earning power of equity capital.
Formula:
Profits available for Equity shareholders
-----------------------------------------------X 100
Average Equity Shareholders Funds
210. Earning per Equity share (EPS): it shows the amount of earnings attributable to each equity
share.
Formula:
Profits available for Equity shareholders
----------------------------------------------
Number of Equity shares
211. Dividend yield ratio: it shows the rate of return to shareholders in the form of dividends based
in the market price of the share
Formula:
Dividend per share
---------------------------- X100
Market price per share
212. Price earnings ratio: it a measure for determining the value of a share. May also be used to
measure the rate of return expected by investors.
Formula: Market price of share (MPS)
11
Rumon Sazzad
------------------------------------X 100
Earnings per share (EPS)
213. Current ratio: it measures short-term debt paying ability.

Formula:
Current Assets
------------------------
Current Liabilities
214. Debt-Equity Ratio: it indicates the percentage of funds being financed through borrowings; a
measure of the extent of trading on equity.
Formula: Total Long-term Debt
---------------------------
Shareholders’ funds
215. Fixed Assets ratio: This ratio explains whether the firm has raised adequate long-term funds to
meet its fixed assets requirements.
Formula: Fixed Assets
-------------------
Long-term Funds
216. Quick Ratio: The ratio termed as ‘liquidity ratio’. The ratio is ascertained y comparing the liquid
assets to current liabilities.
Formula:
Liquid Assets
------------------------
Current Liabilities
217. Stock turnover Ratio: The ratio indicates whether investment in inventory in efficiently used or
not. It, therefore explains whether investment in inventory within proper limits or not.
Formula: cost of goods sold
------------------------------
Average stock
218. Debtors Turnover Ratio: The ratio the better it is, since it would indicate that debts are being
collected more promptly. The ration helps in cash budgeting since the flow of cash from customers
can be worked out on the basis of sales.
Formula: Credit sales
----------------------------
Average Accounts Receivable
219. Creditors Turnover Ratio: It indicates the speed with which the payments for credit purchases
are made to the creditors.
Formula: Credit Purchases
-----------------------
Average Accounts Payable
220. Working capital turnover ratio: It is also known as Working Capital Leverage Ratio. This ratio
indicates whether or not working capital has been effectively utilized in making sales.
Formula: Net Sales
----------------------------
12
Rumon Sazzad
Working Capital
221. Fixed Assets Turnover ratio: This ratio indicates the extent to which the investments in fixed
assets contribute towards sales.
Formula: Net Sales
--------------------------
Fixed Assets
222 .Pay-outs Ratio: This ratio indicates what proportion of earning per share has been used for
paying dividend.
Formula: Dividend per Equity Share
--------------------------------------------X100
Earning per Equity share
223. Overall Profitability Ratio: It is also called as “Return on Investment” (ROI) or Return on Capital
Employed (ROCE). It indicates the percentage of return on the total capital employed in the business.
Formula: Operating profit
------------------------X 100
Capital employed
The term capital employed has been given different meanings a.sum total of all assets Whether fixed
or current b.sum total of fixed assets, c.sum total of long-term funds employed In the business, i.e.,
share capital +reserves &surplus +long term loans – (non business assets + fictitious assets).
Operating profit means ‘profit before interest and tax’
224. Fixed Interest Cover ratio: The ratio is very important from the lender’s point of view. It
indicates whether the business would earn sufficient profits to pay periodically the interest charges.
Formula: Income before interest and Tax
---------------------------------------
Interest Charges
225. Fixed Dividend Cover ratio: This ratio is important for preference shareholders entitled to get
dividend at a fixed rate in priority to other shareholders.
Formula: Net Profit after Interest and Tax
------------------------------------------
Preference Dividend
226. Debt Service Coverage ratio: This ratio is explained ability of a company to make payment of
principal amounts also on time.
Formula: Net profit before interest and tax
----------------------------------------------- 1-Tax rate
Interest + Principal payment installment
227. Proprietary ratio: It is a variant of debt-equity ratio . It establishes relationship between the
proprietor’s funds and the total tangible assets.
Formula: Shareholders funds
------------------------------
Total tangible assets
228. Difference between joint venture and partnership: In joint venture the business is carried on
without using a firm name, In the partnership, the business is carried on under a firm name. In the
joint venture, the business transactions are recorded under cash system In the partnership, the
business transactions are recorded under mercantile system. In the joint venture, profit and loss is
ascertained on completion of the venture In the partnership, profit and loss is ascertained at the end
13
Rumon Sazzad
of each year. In the joint venture, it is confined to a particular operation and it is temporary. In the
partnership, it is confined to a particular operation and it is permanent.
229. Meaning of Working capital: The funds available for conducting day to day operations of an
enterprise. Also represented by the excess of current assets over current liabilities.
230. Concepts of accounting:
1. Business entity concepts: - According to this concept, the business is treated as a separate entity
distinct from its owners and others.
2. Going concern concept :- According to this concept, it is assumed that a business has a reasonable
expectation of continuing business at a profit for an indefinite period of time.
3. Money measurement concept :- This concept says that the accounting records only those
transactions which can be expressed in terms of money only.
4. Cost concept: - According to this concept, an asset is recorded in the books at the price paid to
acquire it and that this cost is the basis for all subsequent accounting for the asset.
5. Dual aspect concept: - In every transaction, there will be two aspects – the receiving aspect and
the giving aspect; both are recorded by debiting one accounts and crediting another account. This is
called double entry.
6. Accounting period concept: - It means the final accounts must be prepared on a periodic basis.
Normally accounting period adopted is one year, more than this period reduces the utility of
accounting data.
7. Realization concept: - According to this concepts, revenue is considered as being earned on the
data which it is realized, i.e., the date when the property in goods passes the buyer and he become
legally liable to pay.
8. Materiality concepts: - It is a one of the accounting principle, as per only important information
will be taken, and UN important information will be ignored in the preparation of the financial
statement.
9. Matching concepts: - The cost or expenses of a business of a particular period are compared with
the revenue of the period in order to ascertain the net profit and loss.
10. Accrual concept: - The profit arises only when there is an increase in owners capital, which is a
result of excess of revenue over expenses and loss.
231. Financial analysis: The process of interpreting the past, present, and future financial condition
of a company.
232. Income statement: An accounting statement which shows the level of revenues, expenses and
profit occurring for a given accounting period.
233. Annual report: The report issued annually by a company, to its share holders. it containing
financial statement like, trading and profit & lose account and balance sheet.
234. Bankrupt: A statement in which a firm is unable to meets its obligations and hence, it is assets
are surrendered to court for administration
235. Lease: Lease is a contract between to parties under the contract, the owner of the asset gives
the right to use the asset to the user over an agreed period of the time for a consideration.
236. Opportunity cost: The cost associated with not doing something.
237. Budgeting: The term budgeting is used for preparing budgets and other producer for
planning,co-ordination,and control of business enterprise.
238. Capital: The term capital refers to the total investment of company in money, tangible and
intangible assets. It is the total wealth of a company.
239. Capitalization: It is the sum of the par value of stocks and bonds out standings.
240. Over capitalization: When a business is unable to earn fair rate on its outstanding securities.
241. Under capitalization: When a business is able to earn fair rate or over rate on it is outstanding
securities.
242. Capital gearing: The term capital gearing refers to the relationship between equity and long
term debt.
243. Cost of capital: It means the minimum rate of return expected by its investment.
14
Rumon Sazzad
244. Cash dividend: The payment of dividend in cash

245. Define the term accrual: Recognition of revenues and costs as they are earned or incurred. it
includes recognition of transaction relating to assets and liabilities as they occur irrespective of the
actual receipts or payments.
245. Accrued expenses: An expense which has been incurred in an accounting period but for which
no enforceable claim has become due in what period against the enterprises.
246. Accrued revenue: Revenue which has been earned is an earned is an accounting period but in
respect of which no enforceable claim has become due to in that period by the enterprise.
247. Accrued liability: A developing but not yet enforceable claim by another person which
accumulates with the passage of time or the receipt of service or otherwise. It may rise from the
purchase of services which at the date of accounting have been only partly performed and are not
yet billable.
248. Convention of Full disclosure: According to this convention, all accounting statements should
be honestly prepared and to that end full disclosure of all significant information will be made.
249. Convention of consistency: According to this convention it is essential that accounting practices
and methods remain unchanged from one year to another.
250. Define the term preliminary expenses: Expenditure relating to the formation of an enterprise.
There include legal accounting and share issue expenses incurred for formation of the enterprise.
251. Meaning of Charge: charge means it is a obligation to secure an indebt ness. It may be fixed
charge and floating charge.
252. Appropriation: It is application of profit towards Reserves and Dividends.
253. Absorption costing: A method where by the cost is determine so as to include the appropriate
share of both variable and fixed costs.
254. Marginal Cost: Marginal cost is the additional cost to produce an additional unit of a product. It
is also called variable cost.
255. What are the ex-ordinary items in the P&L a/c: The transaction which is not related to the
business is termed as ex-ordinary transactions or ex-ordinary items. Egg:- profit or losses on the sale
of fixed assets, interest received from other company investments, profit or loss on foreign
exchange, unexpected dividend received.
256. Share premium: The excess of issue of price of shares over their face value. It will be showed
with the allotment entry in the journal; it will be adjusted in the balance sheet on the liabilities side
under the head of “reserves & surplus”.
257. Accumulated Depreciation: The total to date of the periodic depreciation charges on
depreciable assets.
258. Investment: Expenditure on assets held to earn interest, income, profit or other benefits.
259. Capital: Generally refers to the amount invested in an enterprise by its owner. Ex; paid up share
capital in corporate enterprise.
260. Capital Work In Progress: Expenditure on capital assets which are in the process of
construction as completion.
261. Convertible Debenture: A debenture which gives the holder a right to conversion wholly or
partly in shares in accordance with term of issues.
262. Redeemable Preference Share: The preference share that is repayable either after a fixed (or)
determinable period (or) at any time dividend by the management.
263. Cumulative preference shares: A class of preference shares entitled to payment of emulates
dividends. Preference shares are always deemed to be cumulative unless they are expressly made
non-cumulative preference shares.
264. Debenture redemption reserve: A reserve created for the redemption of debentures at a
future date.
15
Rumon Sazzad
265. Cumulative dividend: A dividend payable as cumulative preference shares which it unpaid
Emulates as a claim against the earnings of a corporate before any distribution is made to the other
shareholders.
266. Dividend Equalization reserve: A reserve created to maintain the rate of dividend in future
years.
267. Opening Stock: The term ‘opening stock’ means goods lying unsold with the businessman in the
beginning of the accounting year. This is shown on the debit side of the trading account.
268. Closing Stock: The term ‘Closing Stock’ includes goods lying unsold with the businessman at the
end of the accounting year. The amount of closing stock is shown on the credit side of the trading
account and as an asset in the balance sheet.
269. Valuation of closing stock: The closing stock is valued on the basis of “Cost or Market prices
whichever is less” principle.
272. Contingency: A condition (or) situation the ultimate out comes of which gain or loss will be
known as determined only as the occurrence or non occurrence of one or more uncertain future
events.
273. Contingent Asset: An asset the existence ownership or value of which may be known or
determined only on the occurrence or non occurrence of one more uncertain future event.
274. Contingent liability: An obligation to an existing condition or situation which may arise in future
depending on the occurrence of one or more uncertain future events.
275. Deficiency: the excess of liabilities over assets of an enterprise at a given date is called
deficiency.
276. Deficit: The debit balance in the profit and loss a/c is called deficit.
277. Surplus: Credit balance in the profit & loss statement after providing for proposed
appropriation & dividend, reserves.
278. Appropriation Assets: An account sometimes included as a separate section of the profit and
loss statement showing application of profits towards dividends, reserves.
279. Capital redemption reserve: A reserve created on redemption of the average cost: - the cost of
an item at a point of time as determined by applying an average of the cost of all items of the same
nature over a period. When weights are also applied in the computation it is termed as weight
average cost.
280. Floating Change: Assume change on some or all assets of an enterprise which are not attached
to specific assets and are given as security against debt.
281. Difference between Funds flow and Cash flow statement: A Cash flow statement is concerned
only with the change in cash position while a funds flow analysis is concerned with change in
working capital position between two balance sheet dates. A cash flow statement is merely a record
of cash receipts and disbursements. While studying the short-term solvency of a business one is
interested not only in cash balance but also in the assets which are easily convertible into cash.
282. Difference between the Funds flow and Income statement:
A funds flow statement deals with the financial resource required for running the business activities.
It explains how were the funds obtained and how were they used, whereas an income statement
discloses the results of the business activities, i.e., how much has been earned and how it has been
spent. A funds flow statement matches the “funds raised” and “funds applied” during a particular
period. The source and application of funds may be of capital as well as of revenue nature. An
income statement matches the incomes of a period with the expenditure of that period, which are
both of a revenue nature.
What are Direct and Indirect Taxes? Give examples.

Direct Taxes: Personal Income Tax.
Indirect Taxes: Excise Duty, Value Added Tax(VAT).
Why does a Balance Sheet balance?
16
Rumon Sazzad
Balance sheet is a Financial Statement of an Firm. The Two sides of Balance sheet consist of Assets
and Liabilities; the amount which is invested in the way of Capital is used for procurement of Assets.
Assets = Liabilities + Shareholders Equity
The company has to pay for buying assets by either borrowing (liabilities) or getting it from
shareholders (shareholders' equity). So that make sense that both sides get equals.
Is loss an asset or a liability?

A loss to the firm is considered as an Asset not as a Liability, because there is no need to pay or
return the money to anyone. It is assumed as amount to be recovered back(or Expenses) in the
concern soon, so it is considered to be an Asset.
What are LIFO & FIFO? What are they used for?
LIFO stands for Last in, First Out, and FIFO as First in, First Out.
These concepts are used in accounting concern dealing with Inventories or Stocks mainly. Usually
this process is used in the warehouse department, where the stock which comes First and those
stocks are used to produce or to sell it that is called as FIFO method and when the product or good,
which arrives last and sent out the process is called LIFO. LIFO and FIFO is based on the Time when it
arrives and sent out.
What are Quick Assets?

Quick Assets are those assets which are in Cash, or which can be easily convertible to cash. Stocks
are an example for Quick Assets, as it can be convertible easily.
In accounting terms, Quick Assets = Current Assets - Inventories.
What is Quick Assets Ratio?

To Payoff the Current Liabilities (Debts), the firm make an ratio to know the current liquidity ratio,
that is called as Quick Assets Ratio or Acid Test Ratio or Liquidity Ratio.
This is an commonly used tests for knowing short term financial stability.
Quick Assets Ratio = Cash + Securities + Accounts Receivable / Current Liabilities
Or
Quick Assets Ratio = Current Assets – Stock / Current Liabilities.
What is Amortization?
Amortization is an charge made on the assets, which works same as Depreciation. Basically
Amortization is charged on the Intangible assets or writing off of loans. For Example, if the company
purchases Equipment by taking the Loan, the Equipment is depreciated while the Loan amount is
amortized.
3) Did you use accounting applications at your previous companies or prefer working manually??
Yes, I have used Advanced Business Solutions and AME Accounting Software in my previous jobs.
4) Can you name any other accounting application?
Yes, I am familiar with CGram Software, Financial Force, Microsoft Accounting Professional,
Microsoft Dynamics AX and Microsoft Small Business Financials.
5) Which accounting application you prefer most and why?
I think all are good though but Microsoft Accounting Professional is best because it offers reliable
and fast processing of accounting transactions that saves time and increases proficiency.
6) What is the abbreviation for the accounting terms debit and credit?
17
Rumon Sazzad
Debit abbreviation is “dr” and credit abbreviation is “cr”.

7) How many types of business transactions are there in accounting?
There are two types of transactions in accounting i.e. revenue and capital.
8) What is balance sheet?
It is a statement that states all the liabilities and assets of the company at certain point.
9) Have you ever heard about TDS, what it is?
Yes, TDS abbreviates Tax Deduction at Source.
10) In balance sheet, where do you show TDS?
It is shown on the assets section, right after the head current asset.
11) Do you have any idea about Service Tax or Excise?
It is a kind of hidden tax that is included in the service provided by the service provider and paid by
the service receiver.
12) Do you think there is any difference between inactive and dormant accounts?
Yes, both are different terms in accounting. Inactive accounts means that accounts have been closed
and will not be used in future as well. While, dormant accounts are those that are not functional
today but may be used in future.
13) What is tally accounting?
It is the software used for accounting in small business and shops for managing routine accounting
transactions.
14) How can you define departmental accounting?
It is a type of accounting in which separate account is created for departments. It is managed
separately as well as shown independently in the balance sheet.
15) Define fictitious assets?
These are the assets that cannot be shown or touch. Fictitious assets can only be felt such as good
will, rights etc.
16) By saying, perpetual or periodic inventory system; what do we mean?
In the first one i.e. the perpetual inventory system, the accounts are adjusted on continual basis. In
the periodic inventory system, the accounts are adjusted periodically.
17) In accounting, how do you define premises?
Premises refer to fixed assets that are shown in the balance sheet.
18) In accounting, VAT abbreviates what?
VAT means Value Added Tax.
19) Do you possess any knowledge about accounting standards?
Yes, as per my knowledge there are total 33 accounting standards published so far by ICAI. The
purpose of these standards is to implement same policies and practices in any country.
21) How can you explain the basic accounting equation?
We know that accounting is all about assets, liabilities and capital. Therefore, the accounting
equation is:
Assets = Liabilities + Owners Equity.
22) Define Executive accounting?
It is a type of accounting that is specifically designed for the business that offers services to users.
23) Define Public accounting?
Public accounting offers audits and CPAs to review company financial records to ensure
accountability. It is for general public.
24) What is a CPA?
CPA stands for Certified Public Accountant. To become a CPA, one should have to do many other
qualifications as well. It is a qualification with 150 hour requirement; it means that one should
complete 150 credit hours at any accredited university.
25) What do you think is bank reconciliation statement?
A reconciliation statement is prepared when the passbook balance differs from the cashbook
balance.
18
Rumon Sazzad
26) Differentiate Public and Private Accounting?

Public accounting is a type of accounting that is done by one company for another company. Private
accounting is done for your own company.
27) What is project implementation?
Project implementation involves six steps in total such as:
Identify Need
Generate and Screen Ideas
Conduct Feasible Study
Develop the Project
Implement the Project
Control the Project
28) Do you think Accounting Standards are mandatory and why?
Yes, I do believe that accounting standards play a very important role to prepare good quality and
accurate financial reports. It ensures reliability and relevance in financial reports.
29) Can you name different branches of accounting?
There are three branches of accounting named as “Financial Accounting”, “Management
Accounting” and “Cost Accounting”.
30) Differentiate Accounting and Auditing?
Accounting is all about recording daily business activities while auditing is the checking that whether
all these events have been noted down correctly or not.
31) Define dual aspect term in accounting?
As the name implies, the dual aspect concept states that every transaction has two sides. For
example, when you buy something, you give the cash and get the thing. Similarly, when you sale
something, you lose the thing and gets the money. So this getting and losing is basically two aspects
of every transaction.
32) What do we mean by purchase return in accounting?
It is the term introduced in the records for every defective or unsatisfactory good returned back to
its supplier.
33) Define the term material facts in accounting?
Material facts are the bills or any document that becomes the base of every account book. It means
that all those documents, on which account book is prepared, are called material facts.
34) Have you ever prepared MIS reports and what are these?
Yes, I have prepared few MIS reports during my previous jobs. MIS reports are created to identify
the efficiency of any department of a company.
35) Define company’s payable cycle?
It is the time required by the company to pay all its account payables.
36) Define retail banking?
It is a type of banking that involves a retail client. These clients are the normal people and not any
organizational customers.
37) How much mathematics knowledge is necessary or required in accounting?
Not much knowledge but basic mathematical background is required in accounting for operations
like addition, subtraction, multiplication and division.
38) Define bills receivable?
All types of exchange bills, bonds and other securities owned by a merchant that is payable to him
are said as bills receivable.
39) Define depreciation and its types?
By depreciation we mean that a value of an asset is decreasing as it is in use. It has two types such as
“Straight Line Method” and “Written Down Value Method”.
40) Differentiate between consignor and consignee?
Consigner is the owner of the goods or you can say he is the person who delivers the goods to the
consignee. The consignee is the person who receives the goods.
19
Rumon Sazzad
41) Define balancing in accounting?

Balancing means to equate both sides of the T-account i.e. the debit and credit sides of a T-account
must be equal/balanced.
42) How much statistics knowledge is necessary or required in accounting?
You must be very good at statistics if you want to do well in accounting. Otherwise, with minimum
knowledge you cannot manage your day to day transactions effectively in accounting.
43) Define Scrap value in accounting?
It is the residual value of an asset. The residual value is the value that any asset holds after its
estimated life time.
44) Define Marginal Cost?
Suppose you have to produce an additional unit of output. The estimated cost of additional inputs to
produce that output is actually the marginal cost.
45) Define Partitioning in accounting?
It is a kind of groups made on the basis of same responses by a system.
46) Differentiate between provision and reserve?
Provisions are the liabilities or the anticipated items such as depreciation. You can say provisions are
expenses. Reserves are the profits of any company and a part of that profit is placed back to the
business to keep it sustainable in tough times of a company.
47) Define Offset accounting?
Offset accounting is one that decreases the net amount of another account to create a net balance.
48) Define overhead in terms of accounting?
It is the indirect expenditure of a company such as salaries, rent dues etc.
49) Define trade bills?
We know that all types of transactions need to be documented. The trade bills are the documents,
generated against each transaction.
50) Define fair value accounting?
As per fair value accounting, a company has to show the value of all of its assets in terms of price on
balance sheet on which that asset can be sold.
51) Explain what is compound journal entry?
A compound journal entry is just like other accounting entry where there is more than one debit,
more than one credit, or more than one of both debits and credits. It is essentially a combination of
several simple journal entries.
52) What are the accounting events that are frequently involved in compound entries?
The accounting events that are frequently involved in compound entries are;
Record multiple line items in a supplier invoice that address to different expenses
Record all bank deductions associated to a bank reconciliation
Record all deduction and payments related to a payroll
Record the account receivable and sales taxes related to a customer invoice
53) Mention the types of accounts involved in double entry book-keeping?
Double entry book-keeping involves five types of accounts,
Income accounts
Expense accounts
Asset accounts
Liability accounts
Capital accounts
54) Mention what are the rules for debit and credit for different accounts to increase the amount
in your business accounts?
The rules for debit and credit for different accounts,
for a capital account, you credit to increase it and debit to decrease it
20
Rumon Sazzad
for an asset account, you debit to increase it and credit to decrease it

for a liability account, you credit to increase it and debit to decrease it
for an expense account, you debit to increase it, and credit to decrease it
for an income account, you credit to increase it and debit to decrease it
55) List out the Stages of Double Entry System?
Recording of transactions in the journal
Posting of journal entry in to the respective ledger accounts and then preparing a trial balance
Preparing final accounts and closing of books of accounts
56) Mention what is the disadvantage of double entry system?
The disadvantage of double entry system,
If there is any compensatory errors, it is difficult to find out by this system
This system needs more clerical labour
It is difficult to find the errors if the errors are in the transactions recorded in the books
It is not preferable to disclose all the information of a transaction, which is not properly recorded in
the journal
57) Mention what is General ledger account?
The General ledger account is an account where the company records all the information for its
various expenses and income types into separate accounts. Such that all the debits and credits
pertaining to that particular type of transaction can be entered in one place and kept balanced.
58) What is the general classification of accounts that usually ledger account involve?
The general classification of accounts that usually ledger account involves are
Assets- Cash, Accounts Receivable
Liabilities- Accounts Payable, Loans Payable
Stockholders’ equity- Common Stock
Operating revenues- Revenues through Sales
Operating expenses- Rent Expense, Salaries Expense
Non-operating revenues and gains- Investment Income, gain on Disposal of Equipment
Non-operating revenues and losses- Interest Expense, Loss on Disposal of Equipment
59) Mention what are things will not be included in bank reconciliation statement?
In a bank reconciliation statement, following thing can be excluded.
Direct payments made by bank not entered in Cash book
Cheques deposited but not cleared
Cheques dishonoured not recorded in cash book
Wrong debits given by bank
Bank Charges or Interst debited by bank
Banks direct payment not entered in Cash book
60) Under the accrual basis of accounting, when revenues are reported in the accounting period?
When service or goods have been delivered, then revenues are reported in the accounting period.
61) Under what type of account does the unearned revenues fall?
The unearned revenues falls under “Liability” account.
62) Mention whether the account “Cash” will be credited or debited, when a company pays a bill?
The account “Cash” will be credited when a company pays a bill.
63) Mention what is assets minus liabilities?
Assets minus liabilities is equal to owners’ equity or stockholders equity.
64) Entries to revenues accounts such as Service Revenues are usually?
Entries to revenues accounts such as Service Revenues usually goes into credit side.
65) Explain what is the difference between accumulated depreciation and depreciation expense?
The difference between accumulated depreciation and depreciation expense is that
Accumulated depreciation: It is the total amount of depreciation that has been taken on a
company’s assets up to the date of the balance sheet
21
Rumon Sazzad
Depreciation expense: It is the amount of depreciation that is reported on the income statement.
Basically, it is the amount that corresponds only to the period of time indicated in the heading of the
income statement.
66) List out some of the examples for liability accounts?
Some of the examples for liability accounts
Accounts Payable
Accrued Expenses
Short-term Loans Payable
Unearned or Deferred Revenues
Installment Loans Payable
Current Portion of Long-term Debt
Mortgage Loans Payable
67) Explain how you can adjust entries into account?
To adjust entries into account, you can sort entries into five categories.
Accrued expenses: Expenses have been incurred but the vendors invoices are not generated or
processed yet
Accrued revenues: Revenues have been earned but the sales invoices are not generated or
processed yet
Deferred revenues: Money was received in advance of having been paid or earned
Deferred expenses: Money was paid for a future expense
Depreciation expense: An asset purchased in one period must be allocated to expense in each of the
accounting periods of the asset’s useful life
68) Explain what a deferred asset is and give an example?
A deferred asset refers to a deferred debit or a deferred charge. An example of a deferred charge is
bond issue costs. These costs involves all of the fees or charges that an organization incurs in order
to register and issue bonds. This fees are paid in a near time when the bonds are issued but it will
not be expensed at that time.
69) Mention what is Bank Reconciliation?
A bank reconciliation is a process done by a company to ensure that the company’s records (check
register, balance sheet, general ledger account, etc.) are correct and that the bank’s records are also
correct.
70) Mention what is “deposit in transit”?
A deposit in transit is a checks and cash that have been received and recorded by an entity, but
which have not yet been entered in the records of the bank where the funds are deposited.
71) Explain what is an over accrual?
An over accrual is a condition where the estimate for an accrual journal entry is too high. This
estimate may apply to an accrual of expense or revenue.
72) Mention what is account receivable?
A short term amounts due from buyers to a seller, who have purchased goods or services from the
seller on credit is referred as account receivable.
73) Explain what are the activities that includes in Cash Flow Statement?
The cash flow statement showcase the cash generated and used during the year or months. Various
activities that are involved for the Cash Flow are
Operating activities – business activities accounting to cash
Investing activities – sale and purchase of equipment or property
Financial activities- purchase of stock and own bonds
Supplemental information- exchange of significant items that don’t involve cash
74) Mention what happens to company’s “Cash Account” if it borrows money from the bank by
signing a note payable?
Due to double entry, the “cash account” will increase as such the liability account increases.
75) Mention which account is responsible for interest payable?
22
Rumon Sazzad
Account which is responsible or affected by the interest payable is “Current liability account”
76) Mention what is reversing journal entries?
Reversing journal entries are entries made at the beginning of an accounting period to cancel out
the adjusting journal entries made at the end of the previous accounting period.
77) Mention where do generally accruals appear on the balance sheet?
Accrued expenses usually tend to be extremely short-term. So you would record them within the
“current liabilities section” of the balance sheet.
78) List out some of the accrued expenses and the accounts in which you would record them?
Wage accrual is entered with a credit to the “wages payable account”
Interest accrual is entered with a credit to the “interest payable account”
Payroll tax accrual is entered with a credit to the “payroll taxes payable account”
79) Deferred taxation is a part of which equity?
Deferred taxation is a part of owner’s equity.
80) Mention what does the investment of personal assets by the owner will do?
The investment of personal assets by the owner will increase total assets and increase owner’s
equity.
81) What is the equation for Acid-Test Ratio in accounting?
The equation for Acid-Test Ratio in accounting
Acid-Test Ratio = (Current assets – Inventory) / Current Liabilities
82) List out things that fall under intangible asset?
Things that fall under intangible asset are,
Patents
Copyrights
Trademarks
Brand names
Domain names, and so on.
83) Mention what is trial balance in accounting?
In accounting, trial balance is an accounting report that lists the balances in each of an organization’s
general ledger accounts. This is done at the end of posting journal entry to ensure that there are no
posting errors.
84) Where a cash discount should be recorded in journal entry?
A cash discount should be recorded in journal entry as a reduction of expense in “cash account”.
85) Mention why some asset accounts have a credit balance?
Some asset accounts have a credit balance due to following reasons,
Receiving and posting an amount that was higher than the recorded receivable
Expenses occurred faster than the agreed upon prepayments
An error caused by posting an amount to a wrong account
The amount of checks written exceeded the positive amount in the Cash account
Continuing to amortize or depreciate an asset after its balance has reached zero
86) Define what is Bad debt expense?
A Bad debt expense is the amount of an account receivable that is considered to NOT be collectible.
87) Explain what is the Master Account?
A Master Account has subsidiary accounts. A master account receivable could be anything, it could
be account receivable for various individual receivable accounts.
88) Mention in which account does the unpresented cheque will get recorded?
The unpresented cheque will get recorded as a credit to the cash account in the company’s General
ledger.
89) What knowledge should financial accountant have?
A certified financial accountant should have knowledge about
Accounting principles and practices
Reporting and analysis of financial data
23
Rumon Sazzad
Auditing practices and principles

Account management
Budgets
Software knowledge dealing with Accounting
Knowledge of relevant laws, codes and regulations
90) What are the three factors that can affect your cash flow and business profitability?
The three factors that can affect your cash flow and business profit includes
Cash flows from investing activities: It includes shares, bonds, physical property, machineries, etc.
Cash flows from operating activities: It does not include cash received from other sources like
investments
Cash flow from financing activities: It includes any activities that involves dividend payments that the
company made to its shareholders, any money that includes stock to the public, any money
borrowed from the lender etc. in other words, it is a report that tells the firm about the money
borrowed and paid out in order to finance its activities.
91) Explain what is accrual accounting?
Accrual Accounting is a method for measuring the performance and position of the company by
identifying economic events regardless of when cash transaction happened. In this method, revenue
is compared with the expenditures, at the time in which the transaction happens rather than when
the payment is made.
92) Explain the term account payable?
Account payable is referred as the amount company owes to its suppliers, its employees, and its
partners. In other words, it is the basic cost levied on the company to run business process that is
outstanding. Account payable for one company may be account receivable for another firm or
company.
93) Explain the meaning of long-term notes payable is or long term liabilities?
Long-term notes payable or liabilities are referred for that loan that are not supposed to due for
more than a year. These are the loans from banks or financial institution that are secured against
various assets on the balance sheet, such as inventories.
95) Mention what does financial statement of the company includes?
Financial statement of the company includes various information like
Balance Sheet ( Assets, liabilities, and equity)
Income statement ( Profit or Loss statement)
Equity statement
Cash flow statement
96) Explain what is working capital?
Working capital is a financial metric that calculates the resources available to the company to
finance its day-to-day operations. It is typically calculated by deducting current liabilities from
current assets.
97) Explain what is ledger?
A ledger can be referred as an accounting book that keeps the record of journal entries in a
chronological order to individual accounts. The process of recording this journal entries is known as
posting.
98) Mention the types of ledger?
There are three types of ledger
General ledger
Debtors ledger
Creditors ledger
99) Explain what is GAAP?
GAAP means Generally Accepted Accounting Principle; it is a framework of accounting, standards,
procedures & rules determined by the professional accounting industry and practiced by publicly
traded U.S companies all over the U.S.A.
24
Rumon Sazzad
100) Explain what is double-entry accounting? Explain with an example?

Double entry accounting is an accounting system that requires recording business transaction or
event in at least two accounts. It is the same concept of accounting, where every debit account
should be matched with a credit account.
For example, if a company takes a loan from a bank, it receives cash as an asset but at the same time
it creates a liability on a company. This single entry will affect both accounts, the asset accounts,
and the liabilities accounts, such entry is referred as double entry accounting.
101) Explain what does the standard journal entry includes?
A standard journal entry includes, date of business transaction, name of the accounts affected,
amounts to be debited or credited and a brief description of the event.
102) Explain what is liabilities and what all does include in current liabilities?
Liability can be defined as an obligation towards another company or party. It may consist of
delivering goods, rendering services or paying money. They are the opposite of assets, and it may
include
Account payable
Interest and dividend payable
Bonds payable
Consumer deposits
Reserves for federal taxes
Short term loans
103) Mention in simple terms what is the difference between Asset, equity, and liabilities?
Asset: What financial institute (bank) or people owe you
Liabilities: It is something you owe people or organization
Equity: It is something you own, for example, the amount of your house loan you paid off.
Question: What is Cost of Goods Sold?

Answer:
Cost of goods sold for Trading concern:
Cost of Goods Sold = Beginning Inventory + Purchase – Ending Inventory
Cost of goods sold for Manufacturing concern:
Cost of Goods Sold = Beginning finished goods Inventory + Cost of goods manufactured – Ending
finishing
goods
Question: What it Gross Profit?
Answer:
Gross profit = Net sales – Cost of goods sold
Question: What is Net Profit ?
Answer:
Net Profit = Gross profit – Total operating expenses
Question: What is Prime Cost?
Answer:
Prime Cost = Direct Material + Direct Wages + Other Direct expenses
Question: What is Conversion cost?
Answer:
Conversion cost = Wages + Other direct production costs + Production overhead.
Question: What is the difference between Product Cost and Period Cost?
Answer:
Product costs: Product costs include all cost the costs that are involved in acquiring or making a
product. In the
25
Rumon Sazzad
case of manufacturing good, these costs consist of direct materials, direct labor and manufacturing
overhead.
Period Cost: Period costs are all the costs that are not included in product costs. These costs are
expensed on
the income statement in the period in which they are incurred.
Question: What is Fixed cost?
Answer:
Cost that remains constant ,in total, regardless of changed in the level of activity within the relevant
range.
Question: What is relevant range?
Answer: The range of activity within which assumptions about variable and fixed cost behavior are
valid.
Question: What is Cost Driver?
Answer
A "cost driver" is the unit of an activity that causes the change of an activity cost.
Question: What is Activity Base Costing?
Answer:
Activity-based costing (ABC) assigns more indirect costs (overhead) into direct costs. It is a costing
model that
identifies activities in an organization and assigns the cost of each activity resource to all products
and services
according to the actual consumption by each.
Question: What is the difference between Financial Accounting & Management Accounting?
Answer:
Financial Accounting
Ø Financial Accounting is the process of summarizing financial data taken from an organization's
accounting
records and publishing in the form of annual (or more frequent) reports for stakeholder of the
organization
Management accounting
Ø Management Accounting is concerned with the provisions and use of accounting and other
information to
managers within organizations, to provide them with the basis in making informed business
decisions.
Question: What is the difference between Cost Accounting and Management Accounting?
Answer:
Ø Cost accounting is just analysis of financial accounting data for fixation total cost and price of
product and
control on cost.
Ø Management accounting is analysis of financial and cost accounting for management of business
or different
plans and policies. Cost Accounting actually operates within Management Accounting.
Question: What is differential Cost?
Answer:
A difference in costs between any two alternatives is known as differential cost.
Question: What is differential Revenue?
26
Rumon Sazzad
Answer:
A difference in revenues between any two alternatives is known as differential revenue.
Question: What is the difference between Job Order Costing and Process Costing?
Answer:
Ø Job costing deals with the cost determination of every orders or jobs, it is suitable in a production
environment
where each new order is different from the earlier or succeeding order.
Ø Process costing determines the cost per unit of product in an environment where identical
product is produced
for all customers.
Question: What is the difference between Cost and Expense?
Answer:
Ø Cost is the total money, time and resources associated with a purchase or activity for revenue-
generating
activities. A cost might be an expense or it might be an asset.
Ø An expense is a cost that has expired and charged in the firm's income statement as deductions
from the
income.
Question: What is FIFO?

Answer:
FIFO stands for First In, First Out (FIFO).It is the method of accounting for inventory whereby, quite
literally,
the inventory is assumed to be sold in the chronological order in which it was purchased .
Question: What is LIFO?
Answer:
LIFO stands for Last In, First Out. A method of inventory accounting in which the most recently
acquired items
are assumed to have been the first sold.
Question: What is HIPO?
Answer
HIPO stands for Highest-in-First-Out. It is the method of inventory accounting in which the inventory
with the
highest cost of purchase is the first to be used or taken out of stock.
Question: What is Economic Order Quantity?
Answer:
Economic order quantity is the level of inventory that minimizes the total inventory holding costs
and ordering
costs. It is one of the oldest classical production scheduling models. It is also known as Wilson EOQ
Model or
Wilson Formula.
Question: What are the underlying assumptions of Economic Order Quantity?
Answer:
1. The ordering cost is constant.
2. The rate of demand is constant
3. The lead time is fixed
27
Rumon Sazzad
4. The purchase price of the item is constant i.e no discount is available.

5. The replenishment is made instantaneously, the whole batch is delivered at once.
Question: What is Job Costing?
Answer:
Job costing is Order-specific costing technique, used in situations where each job is different and is
performed
to the customer's specification.
Question: What is Batch costing?
Answer:
A type of job costing where a batch of identical products is treated as an individual job. Per unit cost
is
determined by dividing the total batch cost by the number of units produced.
Question: What is Integrated Accounting System?
Answer:
It is a system in which the financial and cost Accounts are inter locked to ensure that all relevant
expenditure
is absorbed into the cost Accounts.
Question: What is the Difference between variable costing and Absorption costing?
Answer:
The main difference between absorption and variable costing is their treatment with fixed
manufacturing
overhead.
Ø Under absorption costing, fixed manufacturing overhead is included in the product cost i.e Both
variable and
fixed manufacturing costs are included in unit product cost
Ø Under variable costing, fixed manufacturing overhead is expensed outright i.e only variable costs
are included in
unit product cost.
Question: What is standard costing?
Answer:
Standard costing is the preparation and use of standard costs, their comparisons with actual cost
and the
analysis of variance to their causes and points of incidence.
Question: What is Shadow Accounting System?
Answer:
Shadow Accounting System is an independent accounting system for recording accounting entries
separate
from the entries in an organization's accounting system of official record.
Question: What is Sub-ledger?
Answer:
Sub-ledger is ledger in which individual accounts of the same type are kept (e.g. customers'
accounts), the
aggregate of these accounts being maintained in a reconciliation account in the general ledger
Question: What is GAAP (Generally Accepted Accounting Principles)?
Answer:
A widely accepted set of rules, conventions, standards, and procedures for reporting financial
28
Rumon Sazzad
information, as
established by the Financial Accounting Standards Board.
Question: What is Accounting Equation?
Answer:
Assets = Liabilities + Owners' Equity
(Resources) (Claims on the Resources)
Question: What is the Difference between Accounting & Book-keeping?
Answer:
Ø Bookkeeping is the maintenance of the company's financial records.
Ø Accounting is the analysis and interpretation of that data for management and planning
purposes.
Question: What is Difference between Public Accounting & Private Accounting?
Answer:
Ø Public accounting includes any accounting work that a company performs for another company.
Examples would
be audits, tax compliance, consulting, etc.
Ø Private accounting is accounting work that is done for your own company. Every company has
some form of an
internal accounting department and those employees would be considered private accountants
Question: What are the Underlying Assumptions of Accounting?
Answer:
1. Separate Entity Assumption: Business is an entity that is separate and distinct from its owners,
so that the
finances of the firm are not mixed with the finances of the owners.
2. Going concern Assumption: The business is going to be operated for foreseeable future
3. Monetary unit Assumption: The transaction must be reported in the form of monetary unit i.e.,
Taka, US
Dollar etc
4. Periodicity Assumption: Information should be prepared and reported periodically (quarterly,
Half-yearly,
annually).
Question: What is Difference between Accrual Basis Accounting & Cash Basis Accounting?
Answer:
Accrual Basis Accounting
Ø In accrual basis accounting, income is reported in the fiscal period when it is earned, regardless of
when it is
received, and expenses are deducted in the fiscal period when they are incurred, whether they are
paid or not.
Ø In other words, using accrual basis accounting, we record both revenues and expenses when they
occur.
Cash Basis Accounting
Ø Revenue recognition: Revenue is recognized when cash is received.
Ø Expense recognition: Expense is recognized when cash is paid.
Question: What is an Accounting error?
Answer:
29
Rumon Sazzad
An accounting error is a non-fraudulent discrepancy in financial transaction documentation. The

term is used
in financial reporting.
Types of accounting errors include:
1. Error of omission -- a transaction that is not recorded.
2. Error of commission -- a transaction that is calculated incorrectly. One example of an error of
commission is
subtracting a figure that should have been added.
3. Error of principle -- a transaction that is not recorded in accordance with generally accepted
accounting
principles ( GAAP). For example, Purchase of Furniture recorded as expense instead of recording as
Asset. .
Question: What is Economic Event?
Answer:
Ø An economic event means transaction.
Ø In accounting, any event that can be measured in terms of money and changes in financial position
of an
organization.
Question: What are the Financial Statements of Banks?
Answer:
1. Balance Sheet
2. Income Statement
3. Cash Flow Statement
4. Statement change in owner’s equity
5. Statement change in liquidity
Question: What is Intangible asset?
Answer:
An intangible asset has no physical substance but provide long-term benefits to the Organization.
For example,
patents, copyrights, trademarks, trade names, franchise licenses, government licenses, goodwill etc.
Question: What is Depreciation?
Answer:
Depreciation is an expense recorded to allocate a tangible asset's cost over its useful life It is a non-
cash
expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence
Question: What is Amortization?
Answer:
Amortization is the writing off an intangible asset over the projected life of the assets. This method
measures
the consumption of the value of intangible assets, such as a patent or a copyright
Question: What is Depletion?
Answer:
Depletion is the amortization of assets that can be physically reduced. It is the actual physical
reduction of
extractable natural resources For example, coal mines, oil fields and other natural resources are
30
Rumon Sazzad
depleted on
company accounting statements .
Question: What is Window Dressing?
Answer :
Window Dressing is Accounting manipulation designed to make a financial statement more
favorable and to
give better liquid financial position than actually exist at the year end.
Question: What is AICPA?
Answer:
American Institute of Certified Public Accountants.
Question: What is IFRS?
Answer:
International Financial Reporting Standards
Question: What is IFA?
Answer: International Federation of Accountants
Explain Financial Accounting. What are its characteristic features?

Financial Accounting is the process in which business transactions are recorded systematically in the
various books of accounts maintained by the organization in order to prepare financial statements.
These financial statements are basically of two types: First is Profitability Statement or Profit and Loss
Account and second is Balance Sheet.
Following are the characteristics features of Financial Accounting:
1) Monetary Transactions: In financial accounting only transactions in monetary terms are

considered. Transactions not expressed in monetary terms do not find any place in financial
accounting, howsoever important they may be from business point of view.
2) Historical Nature: Financial accounting considers only those transactions which are of historical
nature i.e the transaction which have already taken place. No futuristic transactions find any place in
financial accounting, howsoever important they may be from business point of view.
3) Legal Requirement: Financial accounting is a legal requirement. It is necessary to maintain the
financial accounting and prepare financial statements there from. It is also obligatory to get these
financial statements audited.
4) External Use: Financial accounting is for those people who are not part of decision making process
regarding the organization like investors, customers, suppliers, financial institutions etc. Thus, it is for
external use.
5) Disclosure of Financial Status: It discloses the financial status and financial performance of the
business as a whole.
6) Interim Reports: Financial statements which are based on financial accounting are interim reports
and cannot be the final ones.
7) Financial Accounting Process: The process of financial accounting gets affected due to the
different accounting policies followed by the accountants. These accounting policies differ mainly in
two areas: Valuation of inventory and Calculation of depreciation.
Compare Financial Accounting and Cost Accounting.

1) Financial Accounting protects the interests of the outsiders dealing with the organization e.g
shareholders, creditors etc. Whereas reports of Cost Accounting is used for the internal purpose by
the management to enable the same in discharging various functions in a proper manner.
2) Maintenance of Financial Accounting records and preparation of financial statements is a legal
31
Rumon Sazzad
requirement whereas Cost Accounting is not a legal requirement.
3) Financial Accounting is concerned about the calculation of profits and state of affairs of the
organization as whole whereas Cost accounting deals in cost ascertainment and calculation of
profitability of the individual products, departments etc.
4) Financial Accounting considers only transactions of historical financial nature whereas Cost
Accounting considers not only historical data but also future events.
5) Financial Accounting reports are prepared in the standard formats in accordance with GAAP
whereas Cost accounting information is reported in whatever form management wants.
32

Accounting Basics and Interview Questions Answers

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Accounting Basics and Interview Questions Answers

Încărcat de

Drepturi de autor:

Formate disponibile

Rumon Sazzad

ACCOUNTING BASICS AND INTERVIEW QUESTIONS ANSWERS

ACCOUNTING BASICS AND INTERVIEW QUESTIONS

1. Definition of accounting: “the art of recording, classifying and summarizing in a significant

5. Systems of book keeping:

A. Cash system accounting

B. Real a/c: Debit what comes in

8. Meaning of journal: Journal means chronological record of transactions.

57. Characteristics of a company:

133. Elements of cost:

213. Current ratio: it measures short-term debt paying ability.

244. Cash dividend: The payment of dividend in cash

What are Direct and Indirect Taxes? Give examples.

Is loss an asset or a liability?

What are Quick Assets?

What is Quick Assets Ratio?

Quick Assets Ratio = Cash + Securities + Accounts Receivable / Current Liabilities

Debit abbreviation is “dr” and credit abbreviation is “cr”.

26) Differentiate Public and Private Accounting?

41) Define balancing in accounting?

for an asset account, you debit to increase it and credit to decrease it

Auditing practices and principles

100) Explain what is double-entry accounting? Explain with an example?

Question: What is Cost of Goods Sold?

Question: What is FIFO?

4. The purchase price of the item is constant i.e no discount is available.

An accounting error is a non-fraudulent discrepancy in financial transaction documentation. The

Explain Financial Accounting. What are its characteristic features?

Following are the characteristics features of Financial Accounting:

1) Monetary Transactions: In financial accounting only transactions in monetary terms are

Compare Financial Accounting and Cost Accounting.

2) Maintenance of Financial Accounting records and preparation of financial statements is a legal

requirement whereas Cost Accounting is not a legal requirement.

S-ar putea să vă placă și