Accountant interview questions and answers

Double entry means every transaction is recorded in at least two accounts, with equal debits and credits. It comes from the accounting equation: assets equal liabilities plus equity, so if one side changes, something else must change to keep it in balance. For example, if we buy a laptop for ₹60,000 on credit from a supplier, the office equipment account, an asset, is debited ₹60,000, and the supplier account, a liability, is credited ₹60,000. When we pay the supplier, we debit the supplier to clear the liability and credit the bank. The benefit is control: because debits and credits must match, the trial balance can show many recording mistakes, and every balance can be traced back to the entries that built it.

Under the cash basis, you record income when cash comes in and expenses when cash goes out. Under the accrual basis, you record revenue when it is earned and expenses when they are incurred, no matter when cash moves. For example, March electricity paid in April is still a March expense, so at 31 March we book an accrued expense. Similarly, a year of insurance paid in advance is spread over the months it covers, with the unused part shown as a prepayment. Companies use accrual because it matches costs with the revenue they help earn, so profit for a period is meaningful and comparable. It is also required: the Companies Act in India requires accrual-based books, and Ind AS and IFRS are built on it. Cash flow is then shown separately in the cash flow statement.

I start with the closing balance in the cash book and the closing balance on the bank statement for the same date. I tick off matching entries on both sides; in Tally or Zoho Books this is mostly done by matching bank feed lines. Items only on the bank statement, such as bank charges, interest, direct customer deposits or ECS debits, are things the books do not know yet, so I record them in the cash book. Items only in the books are usually timing differences: cheques issued but not yet presented, and deposits not yet credited by the bank. After updating the cash book, I prepare the statement: adjusted cash book balance plus unpresented cheques, minus deposits in transit, should equal the bank balance. Finally I review anything older than a month, like stale cheques, and follow it up rather than carrying it forever.

GST is charged on the supply of goods and services, and the type depends on whether the supply is within one state or across states. If the supplier and the place of supply are in the same state, it is an intra-state supply and the rate is split equally into CGST, which goes to the Centre, and SGST, which goes to that state. In a union territory without a legislature, UTGST replaces SGST. If they are in different states, or for imports, it is an inter-state supply and IGST is charged at the full rate; the Centre then settles the state share. For example, an 18% sale within Karnataka is 9% CGST plus 9% SGST, while the same sale from Karnataka to Kerala is 18% IGST. Registered buyers can claim input tax credit, following set rules on which credit can be used against which liability.

Every transaction starts with a source document, such as a sales invoice, a supplier bill, a bank advice or a payroll sheet. From that document we record a journal entry, which in Tally or Zoho Books is a voucher such as sales, purchase, payment or receipt. The entry is posted to the ledger accounts it affects, so each ledger shows all movements and a running balance. At period end, we extract a trial balance from the ledger balances to check that debits equal credits. Then we pass adjusting entries: accruals, prepayments, depreciation, provisions and inventory. The adjusted trial balance is mapped to the profit and loss statement and the balance sheet, in Schedule III format for Indian companies, and the cash flow statement and notes are prepared from it. Good software automates the posting, but the accountant still owns the adjustments and the review.

Depreciation is the way we spread the cost of a long-term asset, such as a machine or a vehicle, over the years it helps the business earn revenue. If a machine costing ₹5 lakh will be used for five years, charging the whole amount in year one would make that year look terrible and the next four look too good. Charging part of the cost each year follows the matching principle. The amount depends on cost, expected residual value and useful life. The two common methods are straight-line, which charges the same amount every year, and written down value, which charges a fixed percentage of the reducing balance, so more in early years. Depreciation is a non-cash expense: it reduces profit and the asset’s carrying amount but does not use cash, which is why it is added back in the cash flow statement.

Input tax credit is the GST a business pays on its purchases, which it can set off against the GST it collects on its sales. For example, a trader buys goods for ₹1,00,000 plus ₹18,000 GST and sells them for ₹1,50,000 plus ₹27,000 GST. Instead of paying the full ₹27,000 to the government, it uses the ₹18,000 credit and pays only ₹9,000. This means tax is paid only on the value added at each stage, so there is no tax on tax. To claim the credit, the business needs a valid tax invoice, must have received the goods or services, and the supplier must have reported the invoice so it appears in GSTR-2B and paid the tax. The purchase must be used for business, and some items, like most food and beverages or personal-use items, are blocked even if paid by the business.

A provision is an amount set aside for a present obligation or expected loss where the amount or timing is uncertain, for example a warranty provision, a provision for a lawsuit we will probably lose, or an allowance for doubtful debts against receivables. It is a charge against profit, so it is booked as an expense whether the company makes a profit or a loss. A reserve is different: it is an appropriation of profit kept in the business, shown under equity. Examples are retained earnings, general reserve, securities premium or a capital reserve. Creating a reserve does not reduce profit for the year; it only shows how profit after tax is kept or used. So provisions reduce profit and sit in liabilities or against assets, while reserves come out of profit and belong to the shareholders.

I would start with the payables ageing report and pick invoices due in the coming week based on agreed credit terms, along with any priority suppliers. For each one I check that it is approved and matched to the purchase order and goods receipt, and that it has not already been paid, because duplicate payments are a common leak. I then calculate TDS where it applies and confirm that the supplier’s GSTIN and invoice details are correct for input tax credit. Before preparing the bank file, I verify vendor bank details against the master, and any recent change in bank details is confirmed by phone with a known contact, since that is a common fraud route. The payment list goes to an authorised signatory for approval. After payment I book entries in Tally or Zoho Books and send remittance advice to the suppliers.

The main statements are the statement of profit and loss, the balance sheet, the cash flow statement and the statement of changes in equity, supported by notes. Profit and loss shows income and expenses over a period and the resulting profit. The balance sheet shows assets, liabilities and equity at the period end date. The cash flow statement shows where cash came from and went, split into operating, investing and financing activities. They connect in a clear way: profit for the year flows into retained earnings in the equity section of the balance sheet, which the statement of changes in equity also shows. The cash flow statement starts from profit, adjusts for non-cash items and working capital changes, and ends at the closing cash balance, which must match cash on the balance sheet. If these links do not tie, something is wrong.

I run the close from a checklist that lists every task, the owner and the day it is due, for example day 1 for cut-off and day 5 for final reports. First I make sure all sales invoices, supplier bills and expense claims for the month are in, with correct cut-off. Then I book recurring entries: depreciation, prepayment amortisation, payroll and accruals for bills not yet received, using purchase orders and contracts. Next come reconciliations: bank, receivables and payables control accounts against sub-ledgers, GST and TDS accounts against returns, and intercompany balances. Then I review the trial balance and profit and loss against last month and budget and explain any big variance, which often catches missing or duplicate entries. Unresolved items go on a list with an owner. Over time I move steps earlier, like accruing during the last week, to shorten the close.

FIFO assumes the oldest units are sold first, so closing inventory is valued at the most recent costs. Weighted average spreads total cost evenly, either over the period or after each purchase. When prices are rising, FIFO charges older, cheaper costs to cost of goods sold, so profit and closing inventory are higher than under weighted average. Weighted average smooths price swings and is simple for businesses with large volumes of similar items, which is why many ERPs default to it. LIFO is not permitted under Ind AS 2 or IAS 2, so it is not an option for Indian or UAE reporting. Whatever method we choose should fit how the goods actually move and be applied consistently; a change needs justification and disclosure. In every case, inventory is carried at the lower of cost and net realisable value, so slow or damaged stock is written down.

GSTR-2B is the auto-drafted statement of input tax credit built from what my suppliers report in their GSTR-1. Each month I export my purchase register from Tally or Zoho Books and match it with GSTR-2B using GSTIN, invoice number, date and tax amount, usually with a reconciliation tool or an Excel template. I sort the results into matched, in books but not in 2B, in 2B but not in books, and amount mismatches. For invoices missing from 2B, I contact the supplier to upload them, and I do not claim that credit until it appears, as credit generally depends on it being reflected. Invoices in 2B but not in books may be missing bills or wrong GSTIN entries, so I check them. I also exclude blocked credits, such as most food and beverage costs. Then I claim the reconciled ITC in GSTR-3B and keep the working file for audit.

The method should match the way the asset’s benefits are used up. If a building or office furniture gives roughly the same benefit every year, straight-line is the natural choice. If an asset like a vehicle or computer is most productive and loses value fastest in its early years, the written down value method reflects that better. For Indian companies, Schedule II of the Companies Act gives indicative useful lives for each class of asset. A company can use a different life or residual value, but it must have a technical justification and disclose it. I also remind people that book depreciation and income tax depreciation are separate: tax uses the block of assets and prescribed rates, so the difference often creates deferred tax. Finally, useful life and method are reviewed periodically, and any change is applied prospectively as a change in estimate.

A suspense account only holds the difference temporarily; it should be cleared before the accounts are final. First I recheck the trial balance itself: every ledger balance carried correctly and on the right side, and totals added properly. Then I use clues in the amount. If the difference divides by 9, it often points to a transposition, like 5,940 entered as 5,490. If half the difference matches a balance, that balance may be on the wrong side. I then review day book totals and look for one-sided postings, which are more common in imported or manual entries. In modern software true imbalances are rare, so I also check opening balance mismatches and migration entries. Each error found gets a rectification entry with the suspense account on one side, with a clear narration, until the suspense balance is zero.

I start with an ageing report of trade receivables, split into buckets like current, 1–30, 31–90, 91–180 and over 180 days. Under Ind AS 109 or IFRS 9, trade receivables usually use the simplified approach, so we provide for lifetime expected credit losses using a provision matrix. I calculate historical loss rates for each bucket from the past few years of write-offs, then adjust them for current conditions, for example a slowdown in a customer’s industry. Separately, I look at specific customers in dispute, under insolvency or with bounced cheques and provide for them individually. The total is compared with last period and the movement goes to profit and loss. Finally, I document the method and assumptions so the auditors can follow them, and I write off balances only when recovery is no longer reasonably expected.

During the month, sales invoices are raised with the right GSTIN, HSN or SAC codes and place of supply, and e-invoices and e-way bills are generated where required. After the month closes, I reconcile the sales register with e-invoice data and file GSTR-1, which reports outward supplies invoice by invoice for B2B customers. Next I download GSTR-2B, the auto-drafted ITC statement, and reconcile it with the purchase register, separating eligible, blocked and missing credits. Then I prepare GSTR-3B: output tax by type, eligible ITC, reverse charge liability and any reversals, and pay the net tax in cash after using credits in the correct order. Finally, I reconcile the GST ledgers in the books with the returns and the electronic credit and cash ledgers, so that the annual return and any audit are straightforward.

First I identify which payments attract TDS, such as salaries, contractor payments, professional fees, rent and commission, and set up the correct section and rate for each vendor in the accounting system, with their PAN. TDS is generally deducted at the time of crediting the party’s account or paying them, whichever comes first, so I deduct it when booking the invoice, not just at payment. The deducted amount sits in a TDS payable ledger and is deposited to the government by the monthly due date. Each quarter we file TDS returns, 24Q for salaries and 26Q for most other resident payments, and download certificates from TRACES: Form 16 for employees and Form 16A for others. Finally, I reconcile the TDS ledgers with the returns and check that deductees’ credits appear in Form 26AS, fixing PAN or challan errors quickly.

A fixed asset register lists every asset individually: asset tag, description, location, custodian, purchase date, cost, useful life, depreciation method, accumulated depreciation and carrying amount. I update it whenever an asset is capitalised, transferred, impaired or disposed of, following a written capitalisation policy so small items are expensed consistently. Each month or quarter I reconcile the register totals for cost and accumulated depreciation, by asset class, with the balances in the general ledger. Differences usually come from additions booked in the ledger but not tagged, or disposals not removed. I also make sure capital work in progress is moved to assets once they are ready for use. At least once a year, often as required by CARO for Indian companies, we physically verify assets against the register, and missing or idle items are investigated and written off or impaired.

Before the auditors arrive, I make sure the year-end close is complete and every key balance is reconciled: bank, receivables, payables, inventory, fixed assets, GST, TDS, payroll and intercompany. For each line in the trial balance I prepare a schedule that ties to the ledger, with supporting documents like contracts, invoices and bank statements filed in one place. Auditors usually send a prepared-by-client list, so I agree timelines and deliver against it. I help them send balance confirmations to banks, customers and suppliers. During fieldwork I respond to sample requests and queries the same day where possible, and I explain judgement areas like provisions and revenue cut-off with documentation. When they propose adjustments, I discuss them with management, book the agreed ones and keep a record. After the audit, I note the issues raised so next year’s close fixes them earlier.

I would apply the five-step model. Step one, confirm there is an enforceable contract with agreed rights and payment terms. Step two, identify performance obligations: the licence, installation and support are usually distinct if the customer can benefit from each on its own and they are not heavily customised into one output. If installation substantially customises the software, licence and installation might be one obligation. Step three, fix the transaction price, including any variable elements such as service credits or usage bonuses, estimated and constrained. Step four, allocate the price based on standalone selling prices, using observed prices where available or a cost-plus or residual approach where they are not. Step five, recognise revenue: a right-to-use licence at the point control passes, installation when done or as it progresses, and support evenly over the three years. Cash received in advance becomes a contract liability.

At commencement the lessee recognises a lease liability at the present value of unpaid lease payments, discounted at the rate implicit in the lease or, more often, its incremental borrowing rate. The right-of-use asset starts at the same amount plus any initial direct costs, prepaid rent and restoration costs, less incentives received. Each period, interest is charged on the opening liability and the payment reduces it, so the liability unwinds like a loan. The right-of-use asset is depreciated, normally straight-line over the lease term. In profit and loss you therefore see depreciation and interest instead of rent, and total expense is higher in early years because interest is higher then. The liability is split into current and non-current. Leases of 12 months or less and low-value assets can be expensed straight-line instead. Changes in term or payments trigger a remeasurement.

First I make sure the subsidiary uses the same accounting policies and reporting date as the parent, adjusting its figures if needed. At acquisition I compare the consideration paid plus non-controlling interest with the fair value of the subsidiary’s identifiable net assets; the excess is goodwill, and any fair value adjustments are carried into consolidation. Then I add the parent’s and subsidiary’s assets and liabilities line by line, using 100% of the subsidiary’s figures even though we own only 80%. The parent’s investment is removed against the subsidiary’s share capital and pre-acquisition reserves. NCI is shown in equity at 20% of net assets, or at fair value if that option was chosen, plus its share of post-acquisition profits. Finally I eliminate intra-group receivables and payables, intra-group sales and purchases, dividends and any unrealised profit in inventory or assets, and test goodwill for impairment.

Ind AS are Indian accounting standards based on IFRS, notified by the government under the Companies Act. They apply in phases to listed companies and to unlisted companies above certain net worth levels, while smaller companies use the older Indian GAAP standards. India chose convergence instead of full adoption, so there are carve-outs, where Ind AS differs from IFRS, and some carve-ins. One well-known example is a bargain purchase in a business combination: IFRS 3 recognises the gain in profit or loss, while Ind AS 103 generally recognises it in other comprehensive income and accumulates it in capital reserve, or directly in capital reserve in some cases. Another is Ind AS 19, which uses market yields on government bonds to discount employee benefit obligations instead of high-quality corporate bonds. Ind AS also has some extra options, such as for loan covenant breaches. For a group reporting under IFRS in the UAE, I would map these differences when consolidating an Indian subsidiary.

Profit and cash differ because of timing and non-operating items, so I would build a bridge from profit to the change in cash using the indirect cash flow method. First, working capital: rising receivables mean we are booking sales but not collecting, so I would check debtor days and the ageing for overdue or disputed customers. Growing inventory ties up cash, so I would check slow-moving stock. A fall in payables means we are paying suppliers faster. Second, investing and financing: capital expenditure, loan repayments, dividends or owner drawings all reduce cash without touching profit. Third, profit quality: large accrued income, unbilled revenue or non-cash gains can inflate profit. Tax and GST payments also matter. I would present management a one-page bridge showing profit, each adjustment and closing cash, with two or three actions, like tighter collections or an inventory reduction target.

I would first analyse a few months of differences to find the causes. Typical ones are timing, where one entity books an invoice or payment before the other; exchange rates, where the INR and AED books use different rates; missing or disputed invoices; and taxes, for example the Indian entity deducting TDS on a payment to the UAE entity, which then records less cash. Then I would set a group policy: an intercompany cut-off a few days before month end, one rate source for conversion, the invoicing currency fixed in each agreement, and a rule that the billing entity raises the invoice and the other side books it immediately. A monthly matching report by counterparty and transaction makes gaps visible, and any difference above a threshold must be resolved by named owners before consolidation. Tax treatment for cross-border charges should be agreed in advance too.

I start with profit before tax and add back non-cash items like depreciation, impairment and unrealised exchange losses, and remove items that belong elsewhere, such as interest expense, interest income and profit on sale of assets. Then I adjust for working capital: an increase in receivables or inventory is subtracted, an increase in payables is added, and the reverse for decreases. Deducting taxes actually paid, found from the opening and closing tax balances and the tax charge, gives net cash from operating activities. For investing, I build a fixed asset movement schedule to find purchases and sale proceeds, plus investments bought or sold and interest or dividends received. For financing, I take loan drawdowns and repayments, share issues, dividends and interest paid, and lease liability payments. The total net change must equal the movement in cash and cash equivalents between the balance sheets; if not, a movement has been missed.

Deferred tax exists because accounting profit and taxable profit recognise some items in different periods. Under Ind AS 12 or IAS 12, we compare each asset’s and liability’s carrying amount with its tax base. Where future tax will be higher, we have a taxable temporary difference and a deferred tax liability. A common example is plant where tax depreciation is faster than book depreciation: if the book value is ₹8 lakh and the tax written down value is ₹6 lakh, at 25% we recognise a liability of ₹50,000. A deferred tax asset arises from deductible differences, for example a provision for leave encashment that is only deductible for tax when paid, or carried-forward tax losses. We recognise a deferred tax asset only to the extent future taxable profit is probable. We use rates enacted or substantively enacted at the reporting date, and the deferred tax movement goes to profit and loss or OCI depending on the underlying item.

For VAT, I would first confirm when the entity must register with the Federal Tax Authority, based on its taxable supplies and imports, and complete registration on EmaraTax. In the accounting system, I would set up tax codes for 5% standard-rated supplies, zero-rated supplies such as exports, exempt supplies, out-of-scope items and reverse charge on imported goods and services. Invoice templates must meet tax invoice requirements, including the TRN. I would build a VAT return working that ties the ledgers to the return boxes each period and keep records for the required period. For corporate tax, the entity must register too, keep IFRS-based financial statements, and track adjustments from accounting profit to taxable income, such as non-deductible expenses. Since it trades with group companies, I would document arm’s length pricing for related party transactions under transfer pricing rules, and check whether any free zone or small business reliefs could apply.

Some patterns deserve a closer look. Manual journal entries with round amounts, posted at period end, late at night or by senior staff who do not usually post, especially to revenue or reserves. Vendors without GSTIN or PAN, with addresses matching an employee, or whose bank details changed just before a large payment. Duplicate invoice numbers, payments just under approval limits, or one purchase split across several orders. Sales booked near year end and reversed afterwards, or credit notes clustering after the close. Old unreconciled balances, suspense accounts that never clear, and one person who controls a process end to end and never takes leave. If I found something, I would not confront the person or delete anything. I would gather the facts and documents quietly, check whether there is an innocent explanation, and escalate to my manager, finance head or the whistleblower channel, following company policy.