52+ Key Accounting Interview Questions and Answers to Prepare for in 2025

The accounting profession in India is experiencing a significant surge, with over 57,000 accounting job vacancies reported as of March 2025.

This growth underscores the increasing demand for skilled accountants across various sectors. As businesses expand and financial regulations become more intricate, the need for proficient accounting professionals has never been more critical. 

This article delves into 52+ key accounting interview questions and answers to prepare for in 2025.

Essential Accounting Interview Questions and Answers for Beginners

Accounting forms the foundation of financial management, making it essential for aspiring professionals like you to master business success. If you're preparing for an accounting interview, mastering fundamental accounting interview questions and answers will give you a strong edge.

Now, let’s dive into the essential accounting interview questions and answers for beginners.

1. What Are the Main Types of Financial Statements, and What Does Each Represent?

Financial statements provide a comprehensive view of a company’s financial health. They help stakeholders make informed decisions about business performance.

Here are the four main types of financial statements and their purposes:

• Balance Sheet – Shows a company’s assets, liabilities, and shareholders' equity at a specific point in time, indicating financial stability.
• Income Statement – Details revenues, expenses, and net profit or loss over a period, reflecting profitability.
• Cash Flow Statement – Tracks cash inflows and outflows from operating, investing, and financing activities, ensuring liquidity analysis.
• Statement of Shareholders’ Equity – Displays changes in equity, including retained earnings, stock issuance, and dividends.

These financial statements work together to provide a complete financial picture, aiding businesses in decision-making and financial planning.

2. How Does Accounts Payable Differ from Accounts Receivable?

Accounts payable and accounts receivable are essential concepts in business accounting. They represent different aspects of financial transactions.

Here is a comparison:

Managing both efficiently ensures smooth cash flow and financial stability.

Also Read: 20+ Essential Skills Required for Accounting and Finance for Career Growth in 2025

3. What Is Double-Entry Accounting, and How Does It Work?

Double-entry accounting is a fundamental principle that ensures accuracy in financial records by recording every transaction in two accounts.

Here’s how it works:

• Every transaction affects at least two accounts – one is debited, and the other is credited.
• The total debits must always equal total credits, maintaining the accounting equation: 

Assets = Liabilities + Equity.

• Example: If a company purchases office supplies for INR 500 on credit, the journal entry would be:
  • Debit: Office Supplies Expense INR 500
  • Credit: Accounts Payable INR 500

This system prevents errors, ensures balanced books, and provides a transparent financial trail.

Also Read: Finance vs Accounting: Which One Should You Choose?

4. How Would You Define Working Capital, and Why Is It Important?

Working capital measures a company’s short-term financial health and operational efficiency. It reflects the liquidity needed to cover short-term obligations.

Below is how working capital is calculated:

Working Capital = Current Assets – Current Liabilities

• Positive Working Capital: Indicates strong liquidity and ability to fund day-to-day operations.
• Negative Working Capital: Signals potential financial trouble and cash flow challenges.
• Example: If a company has INR 200,000 in current assets and INR 100,000 in current liabilities, its working capital is INR 100,000, ensuring operational stability.

Monitoring working capital helps businesses maintain smooth operations and avoid liquidity crises.

Also Read: Difference Between Fixed Capital and Fluctuating Capital

5. What Are Deferred Revenues, and How Are They Recorded in Financial Statements?

Deferred revenues, also known as unearned revenues, are payments received before delivering goods or services. They represent a company’s obligation to fulfill a service in the future.

Here’s how deferred revenue is recorded:

• Initially Recorded as a Liability – Deferred revenue remains a liability until the service or product is delivered, then gradually converts into revenue.
• Recognized as Revenue Over Time – As services are provided, the liability decreases, and revenue is recorded.
• Example: A company receives INR 10,000 in advance for an annual subscription. The journal entries would be:
  • At the time of payment:
    • Debit: Cash INR 10,000
    • Credit: Deferred Revenue (Liability) INR 10,000
  • After one month (if recognized monthly):
    • Debit: Deferred Revenue INR 833
    • Credit: Revenue INR 833

This ensures that revenue is reported accurately, aligning with the accounting principles.

6. What Is Accrual Accounting, and How Does It Impact Financial Reporting?

Accrual accounting recognizes revenues and expenses when they are incurred, rather than when cash is received or paid. This method provides a more accurate financial picture.

Here’s how accrual accounting impacts financial reporting:

• Revenues Are Recognized When Earned – Even if cash is not yet received (e.g., sales on credit).
• Expenses Are Recorded When Incurred – Even if payment is made later (e.g., utility bills).
• Example: If a company completes a INR 5,000 project in December but receives payment in January, the revenue is recorded in December’s financial statements.

This method ensures financial statements reflect the true financial position of a company, complying with Generally Accepted Accounting Principles (GAAP).

Also Read: Accounting Period Concept: Everything You Need to Know

7. Can You Explain the Accounting Equation and Its Components?

The accounting equation is the foundation of accounting, ensuring that financial records remain balanced:

Assets = Liabilities + Equity

Here’s a breakdown of its components:

• Assets – Resources owned by the company, such as cash, inventory, and property.
• Liabilities – Debts and obligations, including loans and accounts payable.
• Equity – The owner’s residual interest, including retained earnings and share capital.

Example: If a company has INR 500,000 in assets and INR 300,000 in liabilities, its equity is INR 200,000. This equation must always remain balanced, ensuring accurate financial reporting.

Also Read: Difference between Accounting and Accountancy

8. What Is Depreciation, and Why Is It Necessary in Financial Accounting?

Depreciation is the systematic allocation of an asset’s cost over its useful life. It reflects wear and tear and helps businesses match expenses with revenue.

Below are key points about depreciation:

• Spreads Cost Over Time – Instead of a one-time expense, asset costs are allocated over several years.
• Reduces Taxable Income – Businesses can deduct depreciation expenses to lower taxable profits.
• Methods of Depreciation:
  • Straight-Line Method: Equal depreciation each year.
  • Declining Balance Method: Higher depreciation in earlier years.
  • Units of Production: Based on asset usage.

Example: A machine costs INR 50,000 with a 5-year life and no salvage value. Using straight-line depreciation:

Annual Depreciation = INR 50,000 ÷ 5 = INR 10,000 per year.

Depreciation ensures financial statements reflect realistic asset values.

9. How Do Capital Expenditure and Revenue Expenditure Differ, and Why Does It Matter?

Capital and revenue expenditures differ in their impact on financial statements and business operations.

Example: Buying a factory (INR 1M) is a capital expense, while repairing a machine (INR 5,000) is a revenue expense. Proper classification ensures accurate financial reporting.

Also Read: Difference between Revenue Reserve and Capital Reserve

10. What Is a Trial Balance, and How Is It Used in Accounting?

A trial balance is a summary of all ledger balances at a specific date, ensuring total debits equal total credits.

Here’s how it is used:

• Detects Errors – If debits ≠ credits, there is a mistake in journal entries.
• Prepares for Financial Statements – It serves as the foundation for the income statement and balance sheet.
• Example:

If the total debits and credits match, books are balanced, ensuring financial accuracy.

11. What Are Adjusting Entries, and Why Are They Required?

Adjusting entries are journal entries made at the end of an accounting period to update accounts before financial statements are prepared. They ensure revenues and expenses align with the accrual accounting principle.

Here’s why adjusting entries are required:

• Match Revenues and Expenses Properly – Ensures financial statements accurately reflect income and costs.
• Account for Accrued and Deferred Items – Recognizes income earned but not yet received and expenses incurred but not yet paid.

Types of Adjusting Entries:

• Accrued Revenues – Revenue earned but not yet received (e.g., interest income).
• Accrued Expenses – Expenses incurred but not yet paid (e.g., salaries payable).
• Deferred Revenues – Cash received before delivering goods/services (e.g., prepaid subscriptions).
• Deferred Expenses – Expenses paid in advance but recorded over time (e.g., prepaid rent).

Example: If a company owes INR 2,000 in salaries but hasn’t paid yet, the adjusting entry would be:

• Debit: Salary Expense INR 2,000
• Credit: Salaries Payable INR 2,000

These entries ensure the accuracy of financial statements.

Also Read: Accounting Profit: What It Is, How to Calculate It, and Key Differences

12. What Is the Process of Reconciling a Bank Statement?

Bank reconciliation is the process of matching a company’s accounting records with its bank statement to ensure accuracy.

Here’s how to reconcile a bank statement:

1. Compare Bank Statement with Accounting Records – Check for differences between cash ledger and bank balance.
2. Identify Outstanding Checks and Deposits – Adjust for transactions recorded in the books but not yet reflected in the bank.
3. Account for Bank Fees and Interest – Adjust for any charges or interest income not yet recorded.
4. Correct Any Errors – Investigate discrepancies and adjust records if needed.
5. Prepare the Reconciliation Statement – Ensure the adjusted book balance matches the bank statement.

Example: If the bank shows a balance of INR 10,000, but the books show INR 9,800 due to a INR 200 bank fee, the adjustment would be:

• Debit: Bank Fees Expense INR 200
• Credit: Cash INR 200

Regular reconciliation prevents fraud and ensures accurate financial records.

13. What Are Intangible Assets, and How Are They Treated in Financial Statements?

Intangible assets are non-physical assets that provide long-term value to a company, such as patents, trademarks, and goodwill.

Here’s how intangible assets are treated in financial statements:

• Recorded at Acquisition Cost – Initially recorded based on purchase price or development costs.
• Amortization Applied Over Useful Life – Systematically expensed over time if the asset has a limited life (e.g., patents).
• Impairment Testing for Indefinite Assets – Assets like goodwill are reviewed periodically for value reduction.

Example: A company buys a patent for INR 50,000 with a 10-year life. Using straight-line amortization:

Annual Amortization = INR 50,000 ÷ 10 = INR 5,000 per year.

Properly accounting for intangible assets ensures an accurate financial position.

Also Read: Tools of Financial Statement Analysis: Objectives, Techniques, Types

14. How Is Goodwill Defined, and How Is It Recorded in Accounting?

Goodwill is an intangible asset representing the excess purchase price of a company over its net assets. It arises in business acquisitions when a company pays more than the fair value of identifiable assets.

Here’s how goodwill is recorded:

• Calculated as:

Goodwill = Purchase Price – (Fair Value of Assets – Liabilities)

• Not Amortized, Only Tested for Impairment – If goodwill loses value, an impairment loss is recorded.

Example: A company acquires another business for INR 1,000,000, where net assets are valued at INR 800,000.

• Goodwill = INR 1,000,000 – INR 800,000 = INR 200,000
• Entry:
  • Debit: Goodwill INR 200,000
  • Credit: Cash INR 1,000,000
  • Debit: Assets INR 800,000

Goodwill reflects brand value and customer relationships but must be monitored for impairment.

15. What Is Equity, and How Is It Calculated in a Company’s Financials?

Equity represents the owner’s stake in a company after deducting liabilities from assets. It is a key indicator of a company’s financial health.

Formula:

Equity = Assets – Liabilities

Components of Equity:

• Common Stock – Initial capital invested by shareholders.
• Retained Earnings – Profits reinvested in the business.
• Additional Paid-in Capital – Extra funds raised above the stock’s par value.

Example: If a company has INR 500,000 in assets and INR 300,000 in liabilities:

Equity = INR 500,000 – INR 300,000 = INR 200,000

Higher equity indicates financial stability and growth potential.

16. How Do You Calculate Net Income, and Why Is It Crucial for a Business?

Net income is the profit a company earns after deducting all expenses from total revenue. It is a critical measure of financial performance.

Formula:

Net Income = Total Revenue – (Cost of Goods Sold + Operating Expenses + Taxes + Interest + Depreciation)

Example:
A company reports:

• Revenue = INR 100,000
• Cost of Goods Sold = INR 40,000
• Operating Expenses = INR 20,000
• Taxes & Other Expenses = INR 10,000

Net Income = INR 100,000 – (INR 40,000 + INR 20,000 + INR 10,000) = INR 30,000

Net income helps businesses assess profitability, plan growth, and attract investors.

Also Read: Difference Between Gross Total Income and Total Income

17. What Is the Operating Cycle, and How Does It Affect a Company’s Cash Flow?

The operating cycle refers to the time taken for a company to purchase inventory, sell goods, and collect cash from customers. It directly impacts cash flow by determining how quickly a business can convert investments into cash.

Here’s how the operating cycle works:

1. Inventory Purchase – The company buys raw materials or stock.
2. Production or Sales Process – Converts inventory into finished goods and sells them.
3. Accounts Receivable Collection – Customers pay for the goods/services sold.

Formula:

Operating Cycle = Inventory Period + Accounts Receivable Period

Example: If a company takes 40 days to sell inventory and 30 days to collect receivables, the operating cycle is:
40 + 30 = 70 days.

A shorter operating cycle improves cash flow, while a longer cycle may cause liquidity issues.

18. What Is a Petty Cash Fund, and How Is It Managed?

A petty cash fund is a small amount of cash set aside for minor business expenses such as office supplies, travel costs, or employee reimbursements. It helps businesses handle small transactions without writing checks.

Here’s how a petty cash fund is managed:

1. Establish the Fund – Set an initial balance (e.g., INR 500).
2. Record Expenses – Keep receipts for every transaction.
3. Replenish the Fund – Restore the balance when cash runs low.
4. Perform Periodic Audits – Ensure proper tracking of expenditures.

Example: If a company spends INR 100 on office supplies from a INR 500 petty cash fund, an entry is made:

• Debit: Office Supplies Expense INR 100
• Credit: Petty Cash INR 100

Managing petty cash properly ensures accurate financial reporting and prevents misuse.

Also Read: Purpose of Financial Accounting: Function, Importance, Principles

19. How Is Inventory Accounted for, and What Methods Are Used to Track It?

Inventory is accounted for as a current asset and is crucial for determining the cost of goods sold (COGS) and profitability.

Inventory Valuation Methods:

Using the right inventory method impacts profits and tax liabilities.

Also Read: What Is Inventory Management? A Guide to Benefits, Careers, and Challenges in 2025

20. What Is the Purpose of a Budget in Financial Management, and How Is It Prepared?

A budget is a financial plan that helps businesses allocate resources, control expenses, and achieve financial goals. It ensures a company stays on track financially.

Steps to Prepare a Budget:

1. Set Financial Goals – Define revenue and expense targets.
2. Estimate Revenues – Predict income based on past data and market trends.
3. Determine Fixed and Variable Costs – Separate essential expenses from adjustable ones.
4. Create a Contingency Fund – Plan for unexpected costs.
5. Monitor and Adjust – Regularly review and refine the budget.

Example: A company plans for INR 500,000 in revenue and INR 400,000 in expenses. The budget shows a projected profit of INR 100,000, helping in financial decision-making.

Proper budgeting helps businesses avoid overspending and stay profitable.

Worried about tough accounting interview questions? upGrad’s Financial Analysis course builds real-world skills with expert-led training to boost your confidence.

Now that you have a strong grasp of the fundamental accounting interview questions, let’s move on to more complex questions suited for experienced candidates.

Intermediate Accounting Interview Questions for Experienced Candidates

As an experienced accounting professional, you are expected to go beyond the basics and demonstrate a deeper understanding of financial principles. These intermediate accounting interview questions and answers will help you showcase your expertise in financial reporting, compliance, and analysis.

Now, let’s explore intermediate level accounting interview questions designed for senior professionals looking to take their careers to the next level.

21. What Are Accrued Expenses, and How Are They Handled in Financial Accounting?

Accrued expenses are costs that a company has incurred but not yet paid. These expenses are recorded in the accounting period in which they occur, even if payment is made later, following the accrual accounting principle.

Here’s how accrued expenses are handled:

1. Recorded as a Liability – Since payment is due in the future, it appears under current liabilities.
2. Adjusted with Journal Entries – At the end of the period, an adjusting entry is made:
   • Debit: Expense Account
   • Credit: Accrued Expense (Liability)
3. Reversed When Paid – Once settled, the liability is removed.

Example: A company receives services worth INR 5,000 in December but pays in January. The entry in December:

• Debit: Consulting Expense INR 5,000
• Credit: Accrued Expenses INR 5,000

Accrued expenses ensure accurate financial reporting and prevent understatement of liabilities.

22. What Is the Principle of Revenue Recognition, and How Does It Affect Financial Statements?

The revenue recognition principle states that revenue should be recorded when earned, not when cash is received. This principle follows the accrual basis of accounting, ensuring accurate financial reporting.

Key Aspects of Revenue Recognition:

• Revenue is recognized when goods/services are delivered.
• Payment timing does not impact revenue recording.
• Accurate revenue reporting helps in financial analysis.

Example: A software company sells an annual subscription for INR 1,200 but delivers services monthly. It records INR 100 each month, not the full INR 1,200 upfront.

Revenue recognition ensures financial statements reflect a company’s true earnings and performance over time.

Also Read: What is Financial Analytics & Why it is important?

23. What Are Long-Term Liabilities, and How Are They Classified in Financial Statements?

Long-term liabilities are financial obligations due after one year. They are reported under non-current liabilities on the balance sheet and affect a company’s financial stability.

Types of Long-Term Liabilities:

Managing long-term liabilities effectively ensures a company’s financial health and sustainability.

24. What Is a General Journal, and How Is It Used in Accounting?

A general journal is the primary accounting record where all financial transactions are initially recorded before being posted to ledgers. It provides a detailed log of transactions in chronological order.

How a General Journal Works:

1. Records Transactions – Every financial event is logged with details.
2. Uses Double-Entry System – Each transaction has debits and credits.
3. Transfers to Ledgers – Entries are later posted to the general ledger.

Example Entry: A company purchases office supplies worth INR 500 on credit.

A well-maintained general journal ensures accurate financial reporting and audit readiness.

Also Read: Difference Between Internal Audit and External Audit

25. How Is Inventory Turnover Calculated, and What Does It Indicate About a Company?

Inventory turnover measures how efficiently a company sells and replaces its stock within a period. A higher turnover indicates strong sales, while a low turnover may signal overstocking or weak demand.

Formula:

Inventory Turnover = Average Inventory / Cost of Goods Sold (COGS) 

Example: If a company’s COGS is INR 200,000 and average inventory is INR 50,000:

200,000 ÷ 50,000 = 4 times per year

Interpretation:

• High turnover: Efficient inventory management, strong sales.
• Low turnover: Slow-moving inventory, potential losses.

26. Why Are Financial Ratios Important, and How Do They Help in Evaluating a Company’s Performance?

Financial ratios help analyze a company's performance, financial health, and profitability. Investors, lenders, and managers use these ratios for decision-making.

Key Financial Ratios:

Example: If a company has INR 200,000 in current assets and INR 100,000 in current liabilities:

200,000 ÷ 100,000 = 2.0

A current ratio of 2.0 means the company has twice the assets needed to cover short-term liabilities.

Using financial ratios helps businesses and investors make informed financial decisions.

Also Read: How to Become Financial Advisor? How to Become, Salary, Qualifications, Skills

27. What Is a Contingent Asset, and When Is It Recognized in Financial Statements?

A contingent asset is a potential gain that depends on future events that are beyond the company’s control. It is not recorded in financial statements until it becomes certain.

Recognition Criteria:

• Not recorded until realization is virtually certain.
• Disclosed in financial statements if probable but not guaranteed.
• Recognized only when cash or benefits are received.

Example: A company is involved in a lawsuit where it expects to win INR 1 million.

• Before the court ruling: Disclosed in the notes, not recorded.
• After the ruling: Recorded as income in financial statements.

Contingent assets help businesses anticipate future financial benefits without prematurely inflating revenues.

28. What Is the Purpose of a Statement of Changes in Equity, and What Does It Reflect?

The Statement of Changes in Equity shows the movement in a company's equity during a specific period. It helps stakeholders understand how retained earnings, share capital, and reserves have changed.

Key Components:

• Opening and Closing Equity – Shows the starting and ending equity balance.
• Net Profit or Loss – Affects retained earnings.
• Dividends Paid – Reduces equity.
• New Share Issuance – Increases equity.

Example: If a company starts with INR 500,000 in equity, earns INR 100,000 in profit, and pays INR 20,000 in dividends, closing equity is:

500,000 + 100,000 − 20,000 = 580,000

This statement helps investors assess financial strength and profitability trends.

Also Read: 30 Essential Finance Interview Questions and Answers

29. What Are Accounting Standards, and Why Are They Critical for Consistent Financial Reporting?

Accounting standards are rules and guidelines that ensure financial statements are consistent, transparent, and comparable across businesses. They prevent manipulation and enhance credibility.

Why They Matter:

• Uniformity: Enables comparison between companies.
• Transparency: Prevents financial misrepresentation.
• Compliance: Ensures legal and regulatory adherence.

Examples of Standards:

• GAAP (Generally Accepted Accounting Principles) – Used in the U.S.
• IFRS (International Financial Reporting Standards) – Used globally.

Without accounting standards, financial statements could be misleading, making it harder for investors and regulators to trust the data.

Also Read: Financial Accounting vs. Management Accounting: A Comprehensive Guide

30. What Is the Purpose of Bank Statement Reconciliation, and How Does It Work?

Bank reconciliation ensures a company's cash balance matches its bank statement, identifying discrepancies due to outstanding checks, bank fees, or errors.

Steps to Reconcile a Bank Statement:

1. Compare Bank Statement with Cash Records – Identify mismatches.
2. Adjust for Outstanding Checks or Deposits – Add or deduct pending transactions.
3. Account for Bank Charges and Errors – Record bank fees and fix errors.
4. Finalize the Adjusted Balance – Ensure cash book and bank statement match.

Example: If a company’s cash book shows INR 10,000, but the bank deducts a INR 50 fee:

• Adjusted balance = INR 9,950

Regular reconciliation prevents fraud, detects errors, and ensures accurate financial records.

31. What Are the Common Methods of Inventory Valuation, and How Do They Affect Financial Statements?

Inventory valuation impacts cost of goods sold (COGS), profit, and taxes. Different methods lead to different financial results.

Example: If inventory prices rise, FIFO shows higher profits, while LIFO shows lower profits but tax savings. Choosing the right method affects a company's financial performance and tax liability.

32. How Do You Calculate Earnings Per Share (EPS), and What Does It Tell You About a Company’s Profitability?

Earnings Per Share (EPS) measures a company’s profitability per share, helping investors assess financial performance.

Formula:

EPS = Net Income−Preferred Dividends / Weighted Average Shares Outstanding​

Example: If a company earns INR 1,000,000, pays INR 100,000 in preferred dividends, and has 500,000 outstanding shares:

EPS = 1,000,000−100,000 / 500,000​ = 1.80

Why It Matters:

• Higher EPS indicates strong profitability.
• Lower EPS may signal declining performance.

EPS is a key metric in stock valuation and investment decisions.

33. What Is the Difference Between Gross Profit and Net Profit, and Why Is It Important to Distinguish Between Them?

Gross profit and net profit measure a company’s profitability at different levels.

Example: A company earns INR 500,000 in revenue with INR 200,000 COGS and INR 150,000 in expenses:

Gross Profit = 500,000 − 200,000 = 300,000 Net Profit = 300,000 − 150,000 = 150,000

Importance:

• Gross profit shows operational efficiency.
• Net profit determines overall financial health.

Distinguishing these helps businesses identify areas for cost control and revenue growth.

34. How Does Financial Accounting Differ from Cost Accounting, and What Are the Key Distinctions?

Financial and cost accounting serve different purposes:

Example:

• A financial accountant prepares income statements for investors.
• A cost accountant analyzes production costs to improve efficiency.

Both are essential, but financial accounting is for external reporting, while cost accounting helps businesses control expenses and improve profitability.

Also Read: Difference between Cost Accounting and Management Accounting

35. What Does the Concept of Materiality Mean in Financial Reporting, and How Is It Applied?

Materiality is a key accounting principle that determines whether an item is significant enough to impact financial decisions. If an omission or misstatement could influence investor decisions, it must be reported.

Application in Accounting:

• Major transactions (material): Must be reported.
• Minor transactions (immaterial): Can be ignored or grouped.

Example:

• A INR 10 million error in a company’s INR 100 million revenue is material.
• A INR 500 error is not material.

Materiality ensures financial statements provide relevant and meaningful information, focusing on important financial details rather than immaterial data.

As you gain more experience in accounting, the complexity of interview questions increases, requiring a deeper understanding of financial principles. Below are advanced accounting interview questions designed for senior professionals.

Advanced Accounting Interview Questions for Senior Professionals

As a senior accounting professional, you are expected to have in-depth knowledge of complex financial concepts and strategic decision-making. Preparing for advanced accounting interview questions and answers will help you showcase your expertise in financial reporting, compliance, and risk management.

To excel in technical accounting interviews, let’s explore the top technical accounting interview questions you must know in 2025.

36. What Is the Purpose of an Audit, and What Role Does It Play in Financial Reporting?

An audit is an independent examination of a company’s financial statements to ensure accuracy, compliance with regulations, and fairness in reporting.

Key Purposes of an Audit:

• Ensures Accuracy: Verifies that financial statements are free from material misstatements.
• Enhances Credibility: Builds trust among investors, stakeholders, and regulatory bodies.
• Detects Fraud & Errors: Identifies potential financial mismanagement.
• Ensures Compliance: Confirms adherence to accounting standards (GAAP, IFRS).

Role in Financial Reporting:

• Provides an audit opinion (unqualified, qualified, adverse, or disclaimer).
• Improves transparency and investor confidence.
• Helps companies make better financial decisions.

An audit safeguards financial integrity, ensuring stakeholders rely on accurate financial information for decision-making.

Also Read: How Blockchain Transforming the Accounting & Auditing

37. What Does Liquidity Mean in Accounting, and Why Is It Essential for Business Operations?

Liquidity refers to a company’s ability to meet short-term financial obligations using available assets.

Key Liquidity Measures:

• Current Ratio = Current Assets / Current Liabilities
• Quick Ratio = (Current Assets - Inventory) / Current Liabilities
• Cash Ratio = Cash & Cash Equivalents / Current Liabilities

Why Liquidity Matters:

• Ensures Smooth Operations – Companies need liquidity to pay suppliers, salaries, and operating expenses.
• Prevents Financial Distress – Poor liquidity can lead to loan defaults and bankruptcy.
• Improves Creditworthiness – Lenders prefer businesses with strong liquidity.

Example: A business with INR 50,000 in cash and INR 40,000 in short-term liabilities has a cash ratio of 1.25, indicating strong liquidity.

Liquidity is crucial for stability and business continuity, ensuring companies can respond to financial challenges.

38. What Is a Cash Flow Statement, and How Does It Reflect a Company’s Financial Health?

The Cash Flow Statement (CFS) tracks cash inflows and outflows over a period, providing insights into a company’s liquidity and financial health.

Three Sections of a Cash Flow Statement:

• Operating Activities – Cash from core business (e.g., sales, expenses).
• Investing Activities – Cash from asset purchases, investments, or sales.
• Financing Activities – Cash from loans, stock issuance, or dividends.

Why the Cash Flow Statement Matters:

• Shows Cash Availability – Unlike net income, CFS shows real cash movement.
• Highlights Profitability vs. Liquidity – A company may be profitable but still lack cash.
• Assists in Decision-Making – Investors assess whether a company can generate cash sustainably.

Example: A company with INR 500,000 in net income but negative operating cash flow may struggle to pay bills despite high profits.

The CFS is essential for understanding financial stability beyond just profitability.

Also Read: Financial Supply Chain Management: A Comprehensive Guide to Processes and Trends

39. How Do You Define a Fixed Asset, and What Role Does It Play in a Company’s Balance Sheet?

A fixed asset is a long-term tangible asset used in business operations that isn’t expected to be sold within a year.

Examples of Fixed Assets:

• Buildings
• Vehicles
• Machinery
• Equipment

How Fixed Assets Appear on a Balance Sheet:

• Recorded under non-current assets.
• Depreciated over time (except land).
• Book Value = Purchase Cost - Accumulated Depreciation.

Role of Fixed Assets:

• Supports operations (e.g., factories for manufacturing).
• Represents major investments in growth.
• Provides collateral for financing.

Example: If a company buys machinery for INR 100,000, depreciates it INR 10,000 annually, after five years, the book value = INR 50,000.

Fixed assets play a crucial role in business valuation and long-term stability.

40. What Is Capital Budgeting, and Why Is It Crucial for Long-Term Financial Planning?

Capital budgeting is the process of evaluating and selecting long-term investments that will benefit a company financially.

Key Techniques in Capital Budgeting:

1. Net Present Value (NPV) – Determines profitability by discounting future cash flows.
2. Internal Rate of Return (IRR) – Measures project profitability percentage.
3. Payback Period – Time required to recover the investment.
4. Profitability Index (PI) – Ratio of benefits to costs.

Why Capital Budgeting Is Crucial:

• Helps in Investment Decisions – Determines which projects yield the best returns.
• Ensures Financial Stability – Prevents over-investing in unprofitable projects.
• Optimizes Resource Allocation – Directs funds to high-growth areas.

Example: If a company plans to invest INR 500,000 in a new factory, capital budgeting helps determine whether the future profits justify the investment.

Capital budgeting ensures strategic financial growth and minimizes investment risks.

Also Read: Complete Guide to Resource Management Projects: Key Steps, Tools, and Strategies

41. What Is Variance Analysis, and How Is It Used to Assess Financial Performance?

Variance Analysis compares actual financial performance with budgeted expectations, helping businesses understand where they are over or underperforming.

Key Types of Variances:

• Revenue Variance – Difference between expected and actual revenue.
• Cost Variance – Difference between expected and actual costs.
• Profit Variance – Impact of revenue and cost variances on profit.

Formula for Variance:

Variance = Actual Value − Budgeted Value

Example: If a company budgets INR 100,000 for production but spends INR 110,000, the variance is +10,000 (unfavorable).

How Variance Analysis Helps:

• Identifies cost overruns or savings.
• Helps improve future budgeting.
• Allows management to take corrective actions.

Variance analysis is essential for financial control, ensuring businesses stay on track with financial goals.

42. What Are Retained Earnings, and How Are They Reflected in a Company’s Financials?

Retained earnings represent the portion of a company’s net income that is kept for reinvestment rather than distributed as dividends. They accumulate over time and indicate a company’s ability to grow.

Formula for Retained Earnings:

Retained Earnings = Beginning Retained Earnings + Net Income − Dividends

How Retained Earnings Are Reflected in Financials:

• Found under Shareholders’ Equity on the Balance Sheet.
• Increased by profits and reduced by losses or dividends.
• Important for financing expansion, research, and debt repayment.

Example: If a company starts with INR 500,000 in retained earnings, earns INR 200,000 in net income, and pays INR 50,000 in dividends, the new retained earnings will be INR 650,000.

Retained earnings reflect a company’s long-term financial health and reinvestment strategy.

Also Read: Top Interview Questions & Answers for Finance Students

43. What Is a Dividend, and How Is It Calculated and Distributed to Shareholders?

A dividend is a portion of a company’s earnings paid to shareholders as a return on investment.

Types of Dividends:

• Cash Dividend – Direct cash payment per share.
• Stock Dividend – Additional shares given to shareholders.
• Property or Special Dividend – One-time, non-recurring payout.

Formula for Dividend Calculation:

Dividend per Share = Total Dividends Paid / Total Outstanding Shares

Example: If a company declares INR 1,000,000 in total dividends and has 500,000 shares outstanding, the dividend per share (DPS) is:

1,000,000 / 500,00=2.00

How Dividends Are Distributed:

• Declaration Date – Board announces dividend.
• Ex-Dividend Date – Investors buying on/after this date don’t receive dividends.
• Record Date – Shareholders eligible for dividends are recorded.
• Payment Date – Dividends are distributed.

Dividends provide investors with returns and signal a company’s financial stability.

44. How Do Investors Assess a Company’s Creditworthiness, and What Factors Influence It?

Creditworthiness refers to a company’s ability to meet debt obligations. Investors evaluate it using financial metrics and credit ratings.

Key Factors Affecting Creditworthiness:

• Debt-to-Equity Ratio (D/E) – High ratios indicate higher financial risk.
• Interest Coverage Ratio – Measures a company’s ability to pay interest expenses.
• Cash Flow Stability – Strong, positive cash flow = better debt repayment capability.
• Credit Rating Agencies – Moody’s, S&P, Fitch assign ratings (AAA, BBB, etc.).

Example:

• A company with INR 2M debt and INR 4M equity has a D/E ratio of 0.5, indicating lower risk.
• A company with a negative cash flow may struggle to pay debts, lowering its creditworthiness.

Creditworthiness impacts loan approvals, interest rates, and investor confidence.

Also Read: What is Business Finance? Definition, Advantages, Tips & Purposes

45. What Is the Difference Between Operating Income and Non-Operating Income, and Why Is This Distinction Important?

Operating Income = Revenue from core business operations (e.g., sales, services).

Non-Operating Income = Revenue from non-core activities (e.g., investments, asset sales).

Formula for Operating Income:

Operating Income = Revenue − Operating Expenses

Example:

• A retail company earns INR 1M from sales and has INR 700K in operating costs.

1,000,000−700,000=300,000(Operating Income)

• It also earns INR 50K from investments—this is non-operating income.

Why the Distinction Matters:

• Investors focus on operating income for business performance.
• High non-operating income may indicate unsustainable earnings.
• Helps businesses separate core profitability from one-time gains.

This distinction ensures transparency in financial analysis.

46. What Is a Tax Provision, and How Does It Impact a Company’s Financial Statements?

A tax provision is the amount a company sets aside to cover expected income taxes for a financial period.

How It’s Calculated:

Tax Provision = Taxable Income × Applicable Tax Rate

Where It Appears in Financial Statements:

• Income Statement – Recorded as income tax expense.
• Balance Sheet – Unpaid tax liabilities appear under current liabilities.

Why It’s Important:

• Ensures compliance with tax regulations.
• Helps companies plan for cash outflows.
• Prevents underpayment penalties.

A tax provision ensures accurate tax reporting and financial planning.

Also Read: Corporate Tax: What is it & How It Works?

47. Why Is an Income Statement Crucial for Evaluating a Company’s Profitability?

The Income Statement (Profit & Loss Statement) shows a company’s financial performance over a period.

Key Sections:

• Revenue (Top Line) – Total earnings from sales/services.
• Expenses – Includes COGS, operating, and non-operating costs.
• Net Income (Bottom Line) – Final profit after all expenses.

Formula for Net Income:

Net Income = Total Revenue − Total Expenses

Why the Income Statement Matters:

• Shows profitability trends (growing or declining).
• Helps investors assess business health.
• Guides management decisions on cost control and growth strategies.

Example:

A strong income statement indicates profitability and growth potential, influencing investor confidence.

48. What Are Contingent Liabilities, and How Should They Be Disclosed in Financial Statements?

Contingent liabilities are potential obligations that may arise based on the outcome of future events. These liabilities are uncertain because they depend on occurrences like lawsuits, warranties, or pending investigations.

Examples of Contingent Liabilities:

• Lawsuits against the company.
• Product warranties and recalls.
• Loan guarantees.
• Environmental liabilities.

Accounting Treatment (Based on Likelihood of Occurrence):

1. Probable and Measurable: If the liability is likely to occur and the amount can be reasonably estimated, it is recorded as a liability on the balance sheet and disclosed in the notes to financial statements.

   Example: A company is being sued, and legal advisors estimate a INR 1M loss with a high probability. It records a INR 1M liability in the financials.

2. Reasonably Possible: If the likelihood is moderate, the liability is only disclosed in footnotes but not recorded on the balance sheet.
3. Remote: If the liability is unlikely to occur, it is neither recorded nor disclosed.

Proper disclosure of contingent liabilities ensures transparency and helps investors understand potential risks.

Also Read: Corporate Finance Explained: Definition, Principles, Example

49. Can You Explain the Matching Principle, and How Does It Affect Revenue and Expense Recognition?

The Matching Principle states that expenses should be recorded in the same period as the revenues they help generate, regardless of when cash is paid. This principle ensures accurate financial reporting and prevents misleading profitability figures.

Example:

• A company pays INR 12,000 for annual insurance coverage in January.
• Instead of recording the entire expense in January, it spreads the cost evenly over 12 months, recording INR 1,000 per month in the income statement.

Impact on Revenue & Expense Recognition:

• Aligns expenses with the revenues they contribute to.
• Prevents financial distortion in reports.
• Used in accrual accounting (not cash accounting).

By applying the matching principle, companies provide a clearer picture of profitability.

50. What Is a Contra Account, and How Is It Used to Adjust Financial Balances?

A contra account is an account that reduces the balance of a related account on the financial statements. It is used to adjust or offset the value of an asset, liability, or equity account.

Types of Contra Accounts:

1. Contra Asset Account (reduces asset value)

Example: Accumulated Depreciation offsets Fixed Assets.

2. Contra Liability Account (reduces liability)

Example: Discount on Bonds Payable reduces bond liability.

3. Contra Revenue Account (reduces revenue)

Example: Sales Discounts & Returns offset total revenue.

Example:
A company purchases equipment worth INR 50,000 and records INR 5,000 in depreciation.

• Equipment (Asset Account): INR 50,000
• Accumulated Depreciation (Contra Asset): -INR 5,000
• Net Equipment Value: INR 45,000

Contra accounts help present a more accurate financial position.

Also Read: Top 12 Career Options in Finance for 2025

51. How Do You Differentiate Between Prepaid Expenses and Accrued Expenses, and Why Is This Distinction Necessary?

Understanding the difference between prepaid expenses and accrued expenses is crucial for accurate financial reporting. Prepaid expenses are paid in advance, while accrued expenses are recognized before payment is made.

Below is a comparison to help you distinguish between them and understand their importance in accounting.

Example:

• A company prepays INR 6,000 for office rent for six months (prepaid expense).
• At the end of one month, INR 1,000 is recognized as an expense, and the prepaid asset reduces.
• A company receives electricity services but hasn’t paid the bill (accrued expense).
• The company records the expense immediately and settles it later.

Why the Distinction Matters:

• Prepaid expenses affect assets, while accrued expenses impact liabilities.
• Proper classification ensures accurate financial reporting.

52. How Is the Current Ratio Calculated, and What Does It Indicate About a Company’s Financial Position?

The current ratio measures a company’s ability to pay its short-term obligations with its short-term assets.

Formula:

Current Ratio = Current Assets / Current Liabilities

Example:

• Current assets = INR 500,000
• Current liabilities = INR 250,000
• Current Ratio = 500,000 / 250,000 = 2.0

Interpretation:

• Current Ratio > 1 → Healthy liquidity, the company can cover short-term liabilities.
• Current Ratio < 1 → Potential liquidity issues, the company may struggle to meet obligations.
• Ideal range: 1.5 – 2.5 (varies by industry).

A strong current ratio signals financial stability, while a low ratio may indicate risk of cash flow problems.

As you advance in your accounting career, having a strong grasp of technical concepts becomes essential. Now, let's explore the top technical accounting interview questions to know in 2025.

Top Technical Accounting Interview Questions to Know in 2025

In 2025, technical accounting roles are evolving, and understanding the key interview questions can help you stand out. With growing reliance on automation and complex financial regulations, it's important to be well-prepared.

Here are some of the essential questions you might encounter in technical accounting interviews.

53. How Do You Prepare and Analyze a Trial Balance, and What Is Its Role in Financial Reporting?

The trial balance is a key step in verifying ledger account accuracy before preparing financial statements. It ensures that total debits equal total credits before preparing financial statements.

Below are the steps to prepare and analyze a trial balance:

• List all ledger accounts with their respective debit and credit balances.
• Total both sides to confirm they match.
• Identify discrepancies such as omitted or incorrect entries.
• Adjust errors and prepare an adjusted trial balance for financial reporting.

For example, if a company’s total debit balance is ₹5,00,000 but the credit total is ₹4,90,000, it indicates a ₹10,000 error requiring correction.

54. What Are Adjusting Entries, and Why Are They Necessary to Ensure Accurate Financial Statements?

Adjusting entries are essential for aligning financial statements with the accrual accounting principle. They ensure revenues and expenses are recorded in the correct accounting period.

Here are the key types of adjusting entries:

• Accrued Revenues – Income earned but not yet received (e.g., ₹10,000 interest income recorded before receiving payment).
• Accrued Expenses – Expenses incurred but not paid (e.g., salaries payable of ₹50,000).
• Prepaid Expenses – Advance payments for future expenses (e.g., prepaid rent for six months).
• Depreciation – Spreading asset costs over useful life (e.g., machinery depreciation of ₹5,000 per month).

For example, if rent of ₹12,000 is paid for six months, ₹2,000 must be recorded monthly to match expenses with revenue.

Also Read: What is Financial Analytics and Why is it Important?

55. What Is the Difference Between a General Ledger and a Subsidiary Ledger, and When Would Each Be Used?

The general ledger and subsidiary ledger both record financial transactions, but they serve different purposes in accounting.

Here is a comparison:

For instance, while the general ledger may show total accounts receivable as ₹1,00,000, the subsidiary ledger will detail individual customer balances.

56. How Do You Reconcile a Bank Statement, and Why Is This Process Critical in Accounting?

Bank reconciliation ensures that the company’s cash records match the bank statement, preventing fraud and errors.

Here’s how you reconcile a bank statement:

• Compare balances between the cash book and bank statement.
• Identify outstanding checks or deposits in transit that haven’t cleared.
• Check for errors like duplicate entries or incorrect transactions.
• Adjust for bank charges or interest earned.
• Prepare a reconciliation statement showing differences and corrections.

For example, if the cash book shows ₹50,000 but the bank statement shows ₹48,500, a missing deposit of ₹1,500 might be the cause.

57. How Should Bad Debts Be Accounted For, and What Methods Are Commonly Used?

Bad debts represent uncollectible accounts that must be removed from a company’s books.

Below are two common methods:

• Direct Write-Off Method – Expenses bad debts when they become uncollectible (e.g., writing off ₹5,000 when a customer defaults).
• Allowance Method – Estimates bad debts in advance based on past trends (e.g., setting aside 2% of accounts receivable).

For example, if a company has ₹1,00,000 in outstanding receivables and expects 5% as bad debts, it records an allowance of ₹5,000.

58. What Are the Key Components of Capital Budgeting, and How Does It Help in Decision-Making?

Capital budgeting helps businesses evaluate long-term investments by analyzing costs and returns.

Key components include:

• Initial Investment – Cost of acquiring assets (e.g., ₹5 lakh for new machinery).
• Cash Inflows – Revenue expected from the investment.
• Cash Outflows – Maintenance, operational costs.
• Net Present Value (NPV) – Determines profitability by discounting future cash flows.
• Internal Rate of Return (IRR) – Measures investment efficiency.
• Payback Period – Time taken to recover the investment.

For example, if an investment of ₹5 lakh generates ₹1.2 lakh annually, the payback period is 4.2 years.

Also Read: Scope of Corporate Finance in 2025: Key Trends, Career Opportunities, and Industry Impact

59. How Do You Use a General Journal to Record Transactions, and Why Is It Fundamental to Accounting?

The general journal records financial transactions chronologically, ensuring transparency in accounting.

Steps to record transactions:

• Identify the accounts affected by the transaction.
• Apply the double-entry system (debit one account, credit another).
• Write a clear description for future reference.

Example: If a company purchases equipment worth ₹1,00,000 on credit, the journal entry is:

• Debit: Equipment Account ₹1,00,000
• Credit: Accounts Payable ₹1,00,000

60. How Do You Calculate and Interpret Inventory Turnover, and What Insights Does It Provide About Business Operations?

Inventory turnover measures how efficiently a business sells its stock over a period.

Formula:

Inventory Turnover = Cost of Goods Sold (COGS) ÷ Average Inventory

Example: If COGS is ₹10 lakh and average inventory is ₹2 lakh, inventory turnover is 5 times.

Insights from turnover ratio:

• High turnover – Fast-moving stock, efficient management.
• Low turnover – Slow sales, excess inventory, possible obsolescence.

61. What Is the Proper Method of Accounting for Inventory, and How Do Different Methods Impact Financial Results?

Inventory accounting methods affect profit calculation and tax liability.

Comparison of methods:

Also Read: Most Asked Accounting Interview Questions & Answers – For Freshers and Experienced in 2024

62. What Financial Ratios Are Most Commonly Used, and How Do They Help in Assessing a Company’s Performance?

Financial ratios analyze different aspects of a company’s financial health.

Key ratios include:

• Liquidity Ratios – Measure short-term solvency (e.g., Current Ratio = Current Assets ÷ Current Liabilities).
• Profitability Ratios – Show earning efficiency (e.g., Net Profit Margin = Net Income ÷ Revenue).
• Leverage Ratios – Assess financial risk (e.g., Debt-to-Equity Ratio = Total Debt ÷ Equity).
• Efficiency Ratios – Evaluate operational effectiveness (e.g., Asset Turnover = Revenue ÷ Total Assets).

For instance, a company with a current ratio of 1.5:1 has ₹1.50 in assets for every ₹1 in liabilities, indicating good liquidity.

Struggling to make data-driven financial decisions? upGrad’s Introduction to Business Analytics course helps you master analytical tools and real-world financial modeling.

Now that you’re familiar with the top technical accounting interview questions for 2025, let’s explore proven strategies to help you confidently ace your interview.

Proven Strategies for Excelling in Accounting Interviews

Accounting interviews test both technical knowledge and problem-solving skills. To stand out, candidates must demonstrate expertise, industry awareness, and familiarity with accounting tools.

Below are key strategies to ace your accounting interview:

• Understand Core Accounting Principles – Master GAAP, IFRS, and tax regulations, which firms like Deloitte and PwC prioritize.
• Be Proficient in Accounting Software – Gain hands-on experience with QuickBooks, SAP, or Oracle, widely used in finance and retail industries.
• Prepare for Scenario-Based Questions – Practice adjusting journal entries and reconciling bank statements, crucial in banking and manufacturing sectors.
• Analyze Financial Statements – Review income statements, balance sheets, and cash flows, essential for investment firms like Goldman Sachs.
• Stay Updated on Industry Trends – Follow platforms like Accounting Today and Investopedia to understand regulatory changes.
• Practice Behavioral Questions – Use the STAR method to structure responses on teamwork and problem-solving in audit and corporate finance roles.

How Can upGrad Help Advance Your Accounting Skills?

Enhancing your accounting skills is essential to staying competitive in this growing financial scene. To help you gain practical expertise, upGrad offers industry-relevant courses designed to bridge knowledge gaps and boost your career. 

Here are some relevant courses offered by upGrad:

• Accounting Fundamentals
• Business Analytics Fundamentals
• Economics Masterclass
• Introduction to Macroeconomics
• Introduction to Microeconomics

You can book your free personalized career counseling session today and take the first step toward transforming your future. For more details, visit the nearest upGrad offline center.

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References:
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