BASIC INTERVIEW QUESTION AND ANSWERS ON FINANCE AND ACCOUNTS ASKED IN INTERVIEWS – By MaddaliSwetha

1. What is an Account?

Ans: An account is a summary of the record of all the transactions relating to a person, asset, expenses or gain. It has two sides – the left hand called the debit side and the right hand side called credit side.

 In other words, an Account is a record in the general ledger that is used to collect and store similar information or it can be defined as an account is a record in the general ledger that is used to collect and store debit and credit amounts. For instance: If the company sells merchandise for cash, the Cash account will be debited and the Sales account will be credited.

2. Explain about Asset?

Ans: An asset is anything of value that can be converted into cash. Assets are owned by individuals, businesses and governments. Examples of assets include:  cash, investments, accounts receivable, inventory, supplies, land, buildings, equipment, and vehicles. In others words it is termed as an asset is a something valuable that an entity owns, benefits from, or has use of, in generating income.

3. Explain about classification of accounts?

Ans: Accounts are broadly classified into two types namely:

1)  Personal accounts,

2) Real accounts, and

3) Nominal Accounts.

1) PERSONAL ACCOUNTS: 

These are accounts of persons with whom a concern carries on business. For example: Harish, ING –Vysya Bank, outstanding salaries.

Basic Rule:

Debit = the Receiver

Credit = the Giver

2) REAL ACCOUNTS: 

Accounts relating to properties or assets of a trader are known as real accounts. It includes tangible assets such as buildings, furniture, cash etc and also intangible assets such as goodwill, trademarks etc.

Basic Rule:

Debit = what comes in

Credit = what goes out

3) NOMINAL ACCOUNTS: 

Accounts dealing with expenses, losses, gains and incomes are called Nominal Accounts. Examples – Salaries account, Rent Account, Commission Account etc.

Basic Rule:

Debit = All expenses and losses

Credit = All incomes and gains

Thus, Impersonal accounts are divided as real and nominal accounts.

4. Where suspense accounts appear?

Ans: A suspense account is definition as an account used on a temporary basis for any transaction or balance that cannot be identified.

A suspense account is normally located in the Profit & Loss account. Any amount that is posted to the suspense account should be there on a temporary basis only as this amount needs to be investigated and posted to the correct code. If you have taken over the accounting for a company and they have a suspense account it is very important to make sure these amounts are explained and identified and finally removed and coded to the correct account. If you are unsure about where to code a transaction to then it can be coded to the suspense account until your bookkeeper or accountant can be reached for advice.

Thus, if the trial balance does not agree after transferring the balance of all ledger accounts including cash and bank balance and errors are not located timely, then the trial balance is tallied by transferring the difference of debit and credit side to an account known as suspense account. This is a temporary account to be opened to proceed further and to prepare the financial statements timely.

5. What is online banking?

Ans: If you're like most people, you've heard a lot about online banking but probably haven't tried it yourself. You still pay your bills by mail and deposit cheques at your bank branch, much the way your parents did. You might shop online for a loan, life insurance or a home mortgage, but when it comes time to commit, you feel more comfortable working with your banker or an agent you know and trust.

ORIGIN OF ONLINE BANKING:

The advent of the Internet and the popularity of personal computers presented both an opportunity and a challenge for the banking industry.

ADVANTAGES OF ONLINE BANKING:

1) Convenience: Unlike your corner bank, online banking sites never close; they're available 24 hours a day, seven days a week and they're only a mouse click away.

2) Ubiquity: If you're out of state or even out of the country when a money problem arises, you can log on instantly to your online bank and take care of business, 24/7.

3) Transaction speed: Online bank sites generally execute and confirm transactions at or quicker than ATM processing speeds.

4) Efficiency: You can access and manage all of your bank accounts, including IRAs, CDs, even securities, from one secure site.

5) Effectiveness: Many online banking sites now offer sophisticated tools, including account aggregation, stock quotes, rate alerts and portfolio managing programs to help you manage all of your assets more effectively. 

6. What is Long-Term Liabilities?

Ans: MEANING:

In accounting, a section of the balance sheet that lists obligations of the company that become due more than one year into the future. Long-term liabilities include items like debentures, loans, deferred tax liabilities and pension obligations is termed as long –term liabilities.

DEFINITION:

A category of debts on a company's balance sheet that do not need to be repaid during the upcoming twelve months, but that instead need to be repaid in a year or more.

In short, a long-term liability is a liability due in more than one year.

For example: let’s assume that XYZ Company borrows 10 lakhs from Bank ABC. Because the loan is not due for five years, Company XYZ records the portion of the loan that is not due in the next 12 months as a long-term liability. (Accounting liabilities due within one year are generally classified as current liabilities on a company’s balance sheet.)

Some examples of long-term liabilities are the non current portions of the following: Bonds payable, Long-term loans, Capital leases, Pension liabilities, Post retirement healthcare liabilities, deferred compensation, deferred revenues, deferred income taxes, and Derivative liabilities.

Hence,

Some long-term debt that is due within one year of the balance sheet date could continue to be reported as a long-term liability if there is: A long-term investment that is sufficient and restricted for the payment of the debt, or a financing arrangement that replaces the debt with new long-term debt or with capital stock.

7.What is Time Value of Money?

Ans: The simple concept of time of money is that the value of the money received today is more than of some amount of money received after a certain period today is more than the value of same amount of money received after a certain period. In other words, money received in the future is not as valuable as money received today. 

The sooner one receives money, the better it is. Talking the case of a rational human being, given the option to receive a fixed amount of money at either of the two time periods, he will prefer to receive it at the earliest. If you are given the choice of receiving Rs. 1000 today or later one year, you will definitely opt to receive today than after one year. This is because you value the current receipt of money higher than future receipt of money after one year. The phenomenon is referred to as time preference for money.

8. What is a Checking Account?

Ans: A checking account is a service provided by financial institutions (banks, savings and loans, credit unions, etc.) which allows individuals and businesses to deposit money and withdraw funds from a federally-protected account. The terms of this type of account may vary from bank to bank, but in general, the holder of such an account can use personal checks in place of cash to pay debts. He or she can also use electronic debit cards or ATM cards to access individual accounts or make cash withdrawals.

9. What is a Corporate Tax?

Ans: A tax that must be paid by a corporation based on the amount of profit generated. The amount of tax, and how it is calculated, varies depending upon the region where the company is located.

10. Defined ‘Coefficient of Determination’?

Ans: A measure used in statistical model analysis to assess how well a model explains and predicts future outcomes. It is indicative of the level of explained variability in the model. The coefficient, also commonly known as r-square, is used as a guideline to measure the accuracy of the model.

Coefficient of determination is used in trend analysis. It is computed as a value between 0 (0 percent) and 1 (100 percent). The higher the value, the better the fit and Coefficient of determination is symbolized by r2 because it is square of the coefficient of correlation symbolized by r.

11. What is Manufacturing cost and indirect Manufacturing cost?

Ans: Manufacturing cost is the sum of costs of all resources consumed in the process of making a product. The manufacturing cost is classified into three categories: direct materials cost, direct labor cost and manufacturing overhead.

And Indirect manufacturing costs are a manufacturer's product costs other than direct materials and direct labor. Indirect manufacturing costs are also referred to as manufacturing overhead, factory overhead and factory burden such as depreciation, repairs and maintenance, electricity, salaries, wages, fringe benefits and factory supplies.

12. What are the difference between Funds Flow Statement and Cash Flow Statement?

Ans:  FUNDS FLOW STATEMENT is prepared to show changes in the assets, liabilities and equity between two balance sheet dates, it is also called statement of sources and uses of funds. And a CASH FLOW STATEMENT is a statement showing changes in cash position of the firm from one period to another. It explains the inflows and outflows of cash over a period of time. The inflows of cash may occur from sale of goods, sale of assets, receipts from debtors, interest, dividend, rent, issue of new shares and debentures, rising of loans, short-term borrowing, etc. The cash outflows may occur on account of purchase of goods, purchase of assets, payment of loans loss on operations, payment of tax and dividend, etc.

THE DIFFERENCE BETWEEN FUNDS FLOW STATEMENT AND CASH FLOW STATEMENT:

1. Basis of Analysis: Funds flow statement is based on broader concept i.e. working capital. And Cash flow statement is based on narrow concept i.e. cash, which is only one of the elements of working capital.

2. Source: Funds flow statement tells about the various sources from where the funds generated with various uses to which they are put. And Cash flow statement stars with the opening balance of cash and reaches to the closing balance of cash by proceeding through sources and uses.

3. Usage: Funds flow statement is more useful in assessing the long-range financial strategy. And Cash flow statement is useful in understanding the short-term phenomena affecting the liquidity of the business.

4. Schedule of Changes in Working Capital: In funds flow statement changes in current assets and current liabilities are shown through the schedule of changes in working capital. And in cash flow statement changes in current assets and current liabilities are shown in the cash flow statement itself.

5. End Result: Funds flow statement shows the causes of changes in net working capital. And Cash flow statement shows the causes the changes in cash.

6. Principal of Accounting: Funds flow statement is in alignment with the accrual basis of accounting. And in cash flow statement data obtained on accrual basis are converted into cash basis.