We’ve compiled a list of 10 excellent accounting interview questions and provided detailed answers to help you feel confident and ready to impress your potential employer. From the basics of financial statements to more complex financial ratios and concepts, these questions will help you demonstrate your accounting knowledge and skills.
#1 How do you calculate the debt-to-equity ratio, and what does it tell us about a company’s financial health?
Calculate the debt-to-equity ratio by dividing a company’s total liabilities by its shareholders’ equity. This ratio gives investors and creditors an idea of how much a company relies on debt financing versus equity financing. A high debt-to-equity ratio can indicate that a company is heavily indebted and may be at risk of defaulting on its loans. In contrast, a low ratio may indicate that a company is well-capitalized and financially stable.
#2 Can you explain the difference between accounts payable and accounts receivable?
We’re talking liabilities and assets here. Accounts payable represents the money a company owes to its vendors or suppliers for goods or services received but not yet paid for. On the other hand, accounts receivable means the amount of money owed to a company by its customers for goods or services delivered but not yet paid for. Essentially, accounts payable are liabilities, while accounts receivable are assets.
#3 What is a chart of accounts, and how is it used in accounting?
A chart of accounts (COA) lists all the accounts a company uses to record its financial transactions. The chart of accounts is used to organize financial information into categories such as assets, liabilities, equity, revenue, and expenses, making it easier to generate financial statements and analyze a company’s financial performance. Each account is assigned a unique code or number for easy reference.
#4 How do you calculate a project’s return on investment (ROI), and why is it important?
Calculate ROI by dividing the net profit of a project by its total cost, multiplying by 100 to express the result as a percentage. ROI is important because it allows companies to evaluate a project’s or investment’s profitability and make informed decisions about allocating resources. A high ROI indicates that a project is generating significant profits relative to its cost, while a low ROI may suggest that a project is not worth pursuing.
#5 What is the difference between a capital expenditure and an operating expense, and how are they treated differently on the financial statements?
A capital expenditure is an expense incurred to acquire or improve a long-term asset, such as property, plant, or equipment. Capital expenditures are recorded on the balance sheet as assets and are depreciated over their useful lives. Operating expenses, on the other hand, are expenses incurred in the day-to-day operations of a business, such as salaries, rent, and utilities. Operating expenses are recorded on the income statement and reduce net income.
#6 Can you explain the difference between cash and trade discounts?
A cash discount is a price reduction offered to customers who pay their bills promptly. For example, a company may offer a 2% discount for payment within 10 days of the invoice date. A trade discount, on the other hand, is a reduction in price offered to customers based on their status as a member of a particular industry or trade. Trade discounts are not recorded in the financial statements, while cash discounts are recorded as a reduction in revenue.
#7 What is the difference between a general and subsidiary ledger?
A general ledger records a company’s financial transactions organized by account. Also called a sub-ledger, the subsidiary ledger is a more detailed record of a specific account or group of accounts, such as accounts receivable or accounts payable. Subsidiary ledgers are used to keep track of individual transactions within a larger account, making it easier to analyze and reconcile account balances.
#8 How do you calculate an investment’s net present value (NPV), and why is it an important concept in finance?
Calculate NPV by subtracting the initial cost of an investment from the present value of its expected future cash flows. NPV is vital because it allows investors and managers to compare the profitability of different investment opportunities and make informed decisions about which projects to pursue. A positive NPV indicates that an investment is expected to generate more cash than it costs, while a negative NPV indicates that the investment is not expected to generate enough cash to cover its cost.
#9 How do you determine the cost of goods sold (COGS), and why is it important to calculate accurately?
Determine COGS by adding all the materials, labor, and overhead expenses associated with producing a product or providing a service — but not fixed expenses, marketing, or overhead. A miscalculated COGS can distort a company’s financial performance, making it difficult to make informed decisions about the business. COGS accuracy in an income statement is essential because it determines a company’s profitability.
#10 If you were in charge of a company’s budget, what key factors would you consider to ensure the company’s financial stability and growth?
A company’s financial stability and growth stem from sound accounting principles and practice. Several factors must be taken into account when creating a budget:
- On the income statement, it is essential to consider the expected revenue growth, margins, and profitability.
- On the balance sheet, evaluate the company’s liquidity, capital assets, credit metrics, and liquidity ratios to ensure enough cash on hand to meet financial obligations.
- Examine both short-term and long-term cash flow profiles on the cash flow statement to evaluate the need to raise or return capital to shareholders.
By considering these factors, a CFO can create a budget that sets the company toward financial stability and long-term growth.
Whether entering the accounting field for the first time or looking for new challenges after acquiring years of experience, knowing how to answer potential questions like these is the first step in getting that new role. The time you invest in understanding and learning how to explain these accounting concepts can add to your and your new employer’s success.
Make these responses part of your interview response repertoire.
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