40 Accounting Interview Questions And Answers

Preparing for an accounting job interview? Great!! you have landed on the right page. Whether it is your first accounting job or you are returning after a break, facing interview questions can be a little stressful. But once you understand the basics and know how to explain them clearly, things get a lot easier.

Most accounting interviews are framed to test how well you know accounting fundamentals, how you apply that knowledge in daily tasks and how confident you are while answering. In this blog, you will find 40 important accounting interview questions explained in simple terms, with examples and beginner-friendly answers.

Basic Accounting Questions For Freshers

1. What is accounting?

Accounting is the systematic process of recording, classifying, summarizing and interpreting financial transactions of a business. It helps in keeping track of income and expenses, maintaining records and making financial decisions. Accounting provides a clear picture of the financial health of an organization and ensures compliance with laws and tax regulations.

2. What is the purpose of accounting?

The main purpose of accounting is to provide accurate financial information that helps in decision-making, planning and controlling operations. It allows business owners and managers to see where money is being spent, how much profit or loss is being made and how efficiently the resources are being used. Accounting also helps in preparing financial statements which are essential for stakeholders like investors, banks and government authorities.

3. What is a journal entry?

A journal entry is the first step in recording a financial transaction. It shows which accounts are affected, whether they are debited or credited and includes a brief description of the transaction. Journal entries follow the double-entry system, ensuring that every debit has an equal credit. Proper journal entries help in maintaining accurate books and are later transferred to ledgers.

4. What are the types of accounts in accounting?

Accounts in accounting are mainly divided into three types: Personal, Real and Nominal accounts. Personal accounts relate to individuals, companies or institutions. Real accounts deal with assets such as machinery, buildings and cash. Nominal accounts cover all income, expenses, gains and losses. Each type follows its own golden rule which helps in deciding which account to debit or credit in a transaction.

5. What are assets?

Assets are the valuable resources owned by a business that are expected to provide future economic benefits. These can include physical items like cash, inventory, land, buildings and equipment, as well as intangible items like patents or goodwill. Assets are categorized as current (short-term) and non-current (long-term) based on how quickly they can be converted into cash. Proper tracking of assets is important for understanding the financial strength of a company.

6. What are liabilities?

Liabilities are obligations that a business owes to outside parties, such as loans, outstanding payments or other debts. They are classified as current liabilities (payable within a year) and non-current liabilities (payable after a year). Liabilities represent the claims of creditors on the company’s assets and are shown on the balance sheet’s right-hand side. Managing liabilities effectively is important to maintain liquidity and creditworthiness.

7. What is capital in accounting?

Capital refers to the owner’s investment in the business. It is the amount contributed by the owner or shareholders and includes retained earnings or profits reinvested in the business. Capital can be increased by additional investments or profits and decreased by withdrawals or losses. In the balance sheet, capital is shown on the liabilities side under the heading “Owner’s Equity”. It reflects the financial interest of the owner in the business.

8. What is the accounting equation?

The accounting equation is the foundation of the double-entry system. It states that:
Assets = Liabilities + Capital
This means everything a business owns (assets) is funded by what it owes (liabilities) and what the owner has invested (capital). It ensures the balance sheet always stays balanced and helps in understanding the relationship between financial elements. Every transaction affects at least two of these components, keeping the equation in equilibrium.

9. What is working capital?

Working capital is the difference between a company’s current assets and current liabilities. It represents the short-term liquidity position and operational efficiency of the business. A positive working capital means the company can easily meet its day-to-day expenses and short-term debts. Monitoring working capital helps in maintaining smooth business operations.

For example, if a company has ₹50,000 in current assets and ₹30,000 in current liabilities, its working capital is ₹20,000.

10. What is a trial balance?

A trial balance is a report that lists all the balances from the ledger accounts to ensure the total of debits equals the total of credits. It is prepared at the end of an accounting period to detect any mathematical errors in the books. If the totals match, it means the entries are arithmetically correct, though it does not guarantee the absence of all errors. A trial balance is the basis for preparing financial statements like the income statement and balance sheet.

Common Accounting Concepts

11. What is the double-entry system?

The double-entry system is a standard method of bookkeeping where every transaction affects at least two accounts. For each debit entry, there must be a credit entry of the same amount. This system ensures that the accounting equation stays balanced at all times. It also provides a complete record of financial transactions and reduces errors.

12. What is a ledger?

A ledger is a book or digital record where all the financial transactions of a business are posted from journal entries. It contains individual accounts such as cash, sales, expenses, etc. Each account shows the beginning balance, all additions and subtractions and the final balance. The ledger helps in organizing financial data and is used to prepare the trial balance and financial statements. It is often referred to as the “book of final entry.”

13. What is a balance sheet?

A balance sheet is a financial statement that shows a company’s assets, liabilities and capital on a specific date. It shows what the company owns and owes at a given point in time. The balance sheet follows the accounting equation: Assets = Liabilities + Capital. It is used by management, investors and creditors to assess the financial stability and solvency of the business.

14. What is a profit and loss statement?

A profit and loss statement, also known as an income statement, shows the revenues, expenses and profit or loss of a business over a specific period. It helps in understanding whether the company is making a profit or incurring a loss. It includes details like sales, cost of goods sold, salaries, rent and other operating expenses. This statement is important for assessing the financial performance and is used for budgeting and decision-making.

15. What is depreciation?

Depreciation is the reduction in the value of a fixed asset over time due to wear and tear, usage or obsolescence. It is recorded as an expense in the profit and loss statement and reduces the asset’s value on the balance sheet. Depreciation is important because it spreads the cost of an asset over its useful life.

16. What is accrual accounting?

Accrual accounting is a method where revenues and expenses are recorded when they are earned or incurred, not when the cash is received or paid. This gives a more accurate picture of a company’s financial condition, especially for businesses with credit transactions. For instance, income from a sale made on credit is recorded immediately, even if the payment is received later. Accrual accounting is widely used by larger companies and is required by accounting standards.

17. What is the difference between accounts payable and accounts receivable? 

Accounts payable refers to the amount a business owes to its suppliers for goods or services received on credit. It is a liability. Accounts receivable, on the other hand, is the amount a business expects to receive from its customers for sales made on credit. It is an asset. Managing these accounts properly ensures smooth cash flow and financial stability. Both are important parts of working capital management.

18. What are prepaid expenses?

Prepaid expenses are advance payments made for goods or services that will be used in the future. These are recorded as assets until the benefit is received. Prepaid expenses help match costs with the period in which they are actually used.

For example, if a company pays one year’s rent in advance, it is initially shown as a prepaid expense and then gradually transferred to rent expense each month.

19. What is the outstanding expense?

Outstanding expenses are expenses that have been incurred but not yet paid at the end of the accounting period. These are recorded as current liabilities in the balance sheet. Common examples include unpaid salaries, electricity bills, or rent. Recognizing outstanding expenses ensures that the financial statements reflect all liabilities accurately. This also helps in proper budgeting and forecasting.

20. What is accrued income?

Accrued income is the income that has been earned but not yet received by the business at the end of the accounting period. It is recorded as a current asset in the books. Including accrued income ensures that revenue is recognized in the correct period, in line with the matching principle of accounting.

For example, interest earned on a fixed deposit but not yet credited to the bank account is considered accrued income.

Scenario-Based Questions

21. How do you handle a mismatch in the trial balance? 

When I notice a mismatch in the trial balance, the first step I take is to review the opening balances and check for arithmetic mistakes in ledger totals. Then I look for missing or duplicated entries and verify if all debits and credits have been correctly posted. Sometimes, wrong account classifications can also cause a mismatch, so I carefully recheck those as well. If the issue is still unresolved, I use a suspense account temporarily to balance the books, then dig deeper to correct the error.

22. What would you do if you noticed a mistake in someone else’s accounting work?

If I notice a mistake in someone else’s accounting work, I handle it professionally. I first confirm the error by double checking the source documents and entries. Once I am sure, I inform the concerned colleague politely and also notify my reporting manager if needed. Correcting the error early avoids bigger issues during audits or final reports. I believe in maintaining team spirit while also ensuring accuracy and accountability.

23. How would you handle an overdue payment from a customer?

In case of an overdue payment, I begin by checking the due date and terms of the invoice. Then I send a gentle reminder through email or call to the customer, mentioning the outstanding amount and requesting an update. If the delay continues, I escalate the matter to the accounts manager and follow the company’s credit policy. Regular follow-ups and clear communication are essential to recover overdue amounts without affecting client relationships.

24. What steps do you take to close monthly accounts?

To close monthly accounts, I ensure that all journal entries are posted and reconciliations are completed for cash, bank and vendor accounts. I review all ledgers, update outstanding invoices and confirm accruals and prepayments. Then I prepare the trial balance and generate financial statements such as the profit and loss account and balance sheet. I also document the closing checklist to make sure nothing is missed and submit it for review.

25. How do you prepare for an audit? 

Preparing for an audit involves organizing all financial records, ensuring all books are up-to-date and verifying that transactions have proper documentation. I gather supporting documents like bills, invoices, tax returns and bank statements. I also check reconciliations and trial balances. Ensuring compliance with accounting standards and resolving discrepancies in advance makes the audit smoother and quicker.

26. What accounting software do you know? 

I am familiar with accounting software such as Tally ERP9, QuickBooks, Zoho Books and MS Excel. I use them for recording transactions, preparing invoices, reconciling bank accounts and generating financial reports. These tools help maintain accuracy and save time. I am also comfortable learning new platforms depending on the organization’s requirements.

27. What is Tally used for?

Tally is widely used accounting software that helps record business transactions like sales, purchases, receipts, payments, and journal entries. It supports features like inventory management, payroll processing and GST compliance. Tally is especially popular among small and medium enterprises in India because of its simplicity and strong reporting features. It also allows easy generation of financial statements.

28. What is the role of Excel in accounting? 

Excel is a versatile tool in accounting used for budgeting, forecasting, creating ledgers and analyzing financial data. It helps with maintaining cash books, tracking expenses and preparing customized reports.Excel is often used alongside other accounting software to support detailed calculations and presentations.

29. What are the benefits of using accounting software?

Accounting software helps automate routine tasks, reduce manual errors and save time in bookkeeping. It enables faster generation of financial reports, tracks receivables and payables and ensures compliance with tax laws like GST. Software also supports real-time data access and backup, making it easier to manage large volumes of transactions and conduct audits.

30. What is bank reconciliation? 

Bank reconciliation is the process of matching a company’s internal financial records with the bank statement to ensure consistency. It helps identify differences such as unrecorded transactions, bank charges or errors. Regular bank reconciliation ensures accuracy in cash records and helps detect fraud or mistakes early. It also confirms the true balance available for business use.

Advanced Accounting And Job-Specific Questions

31. What is GST and how is it applied in accounting?

GST (Goods and Services Tax) is an indirect tax levied on the supply of goods and services in India. In accounting, GST is recorded at each point of transaction, on purchases, sales and services. The GST paid on purchases is known as Input Tax Credit and the GST collected on sales is Output Tax. The difference between the two is paid to the government. Accurate recording and classification of GST are crucial for monthly returns and audits.

32. What is the difference between direct and indirect expenses?

Direct expenses are costs directly related to the production of goods or services, like raw materials, wages of factory workers or electricity used in manufacturing. Indirect expenses are costs not directly tied to production but necessary for running the business, such as rent, office salaries or advertising expenses. This distinction helps in preparing the cost sheet and calculating gross profit correctly.

33. What is goodwill in accounting? 

Goodwill is an intangible asset that represents the value of a business’s reputation, customer relationships, brand and other non-physical advantages. It usually arises when a company is acquired at a price higher than the fair market value of its net assets. Goodwill is recorded in the books only during mergers or acquisitions and is tested for impairment rather than being depreciated like other assets.

34. What is a contingent liability? 

A contingent liability is a potential liability that may occur depending on the outcome of a future event. It is not recorded as an actual liability in the books unless the event is likely to occur and the amount can be estimated. Contingent liabilities are disclosed in the notes to account for transparency.

35. How do you calculate net profit? 

Net profit is calculated by subtracting all operating and non-operating expenses (including taxes and interest) from total revenue. The formula is: Net Profit = Total Revenue – (Operating Expenses + Non-Operating Expenses + Taxes) Net profit shows the actual earnings of the business and is a key indicator of profitability. It is reported in the income statement.

36. What is the difference between cash flow and profit?

Profit shows the surplus after all expenses are deducted from revenue. It is calculated on an accrual basis and may not represent actual cash in hand. Cash flow, on the other hand, represents the actual inflow and outflow of cash during a period. A business may show a profit but still struggle with cash flow if its receivables are delayed. Both are essential for measuring business health.

37. What are adjusting entries? 

Adjusting entries are journal entries made at the end of an accounting period to update income and expense accounts to reflect the correct amounts. These are used to record items like accrued income, prepaid expenses, depreciation and outstanding expenses. Adjusting entries ensure that financial statements reflect true financial status according to the matching principle.

38. What is deferred revenue?

Deferred revenue refers to the income received by a company for goods or services not yet delivered. It is recorded as a liability because the company still owes the product or service to the customer.

39. What is the difference between cost accounting and financial accounting? 

Cost accounting focuses on recording and analyzing all costs incurred in a business for internal use. It helps managers make decisions on pricing, budgeting and cost control. Financial accounting, on the other hand, involves recording transactions and preparing financial statements for external stakeholders like investors and regulators. While cost accounting is optional, financial accounting is mandatory for regulatory compliance.

40. Why do you want to pursue a career in accounting? 

I find accounting interesting because it is the backbone of every business. It helps understand how money flows, how performance is measured and how to make informed decisions. I enjoy working with numbers and solving problems. Also, accounting offers strong career stability, opportunities for specialization and a chance to grow in both finance and management roles. It’s a profession that adds real value to any organization.

Conclusion

Building a strong foundation in accounting takes time, consistent effort and a clear grasp of the core concepts. These 40 interview questions and answers are designed to help freshers and professionals prepare with clarity and confidence. Focus on understanding, not just memorizing, and try to connect the answers with real-life situations. That’s what helps in interviews the most.

Wishing you the best of luck for your accounting interview!

Related Reads:

• 10 Objectives Of Financial Accounting: Meaning & Purpose
• 15 Basic Accounting Terms & Their Meaning 

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