Accounting and Finance Interview Questions and Answers: 60 Questions from Easy to Hard
This guide is for B.Com and M.Com freshers, CA, CMA and MBA finance students, and working accountants in India preparing for interviews as an accounts executive, accountant, AP or AR associate or finance analyst. It has 60 questions with model answers in three levels: the basics every fresher is tested on (golden rules, journal entries, trial balance, final accounts), the practical work of the first few years (bank and vendor reconciliations, accruals, TDS and GST entries, ratios, cash flow and costing), and senior topics such as Ind AS leases, revenue, expected credit loss, deferred tax, controls and a faster close. Every figure has been worked out, and any tax rate is given as an assumption because rates change. Answer each question aloud first, then compare with the model answer.
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What accounting and finance interviews cover
- Core accounting: golden rules, journal entries for purchases, sales, GST and TDS, ledgers, the trial balance and rectification of errors. Freshers are often asked to pass entries on paper.
- Final accounts and adjustments: closing stock, depreciation, outstanding and prepaid items, provisions, and the line between capital and revenue spending.
- Process roles: the AP cycle (three-way match, vendor reconciliation, payment runs), the AR cycle (cash application, ageing, collections, bad debts), month-end close and bank reconciliation.
- Analysis: ratios, cash flow statements, working capital and costing questions such as break-even, variances and special orders, usually with numbers to work out.
- Experienced roles: Ind AS topics such as revenue, leases, expected credit loss and deferred tax, internal controls, audit support and how you would speed up the close.
How to prepare (freshers and experienced)
- Freshers: practise 10 to 15 journal entries a day with Indian examples, including GST input and output, TDS on vendor bills and salary deductions, until you can pass them without notes.
- Work at least two full problems from trial balance to balance sheet with adjustments; interviewers like to point at one figure and ask where it goes and why.
- Learn each ratio and costing formula with a small example you can repeat aloud, because many interviews ask you to calculate on paper or in Excel.
- Experienced candidates: prepare two or three stories from your work, such as a reconciliation you fixed, a close you shortened or an audit point you resolved, and what changed as a result.
- Note the rates and limits your role uses (GST, TDS, PF, professional tax) from official sources, and in the interview say you would confirm the current figure rather than quote one from memory.
Common mistakes and interview-day tips
- Swapping debit and credit under pressure. Name each account and its nature (asset, liability, income or expense) aloud first, then decide the side.
- Treating recoverable GST as a cost, or crediting the vendor with the full invoice after TDS was deducted. Show the tax lines separately in every entry.
- Giving a ratio without interpreting it. After any figure, say what it means for the business and what you would check next.
- Stating a tax rate, threshold or due date as if it never changes. Explain the rule and say you would check the current figure.
- Claiming ERP or Excel skills you cannot show. Expect a practical test, such as a lookup or pivot on a ledger dump or a reconciliation on a sample statement.
Accounting and Finance interview questions: Easy questions (freshers)
20 questions1. How do the three golden rules of accounting decide which account to debit and which to credit? Give an entry for each.
First classify each account. For a personal account (a person, firm or bank), debit the receiver and credit the giver. For a real account (cash, machinery, stock), debit what comes in and credit what goes out. For a nominal account, debit expenses and losses and credit incomes and gains. In the entries shown, rent paid in cash debits Rent (nominal) and credits Cash (real); a credit sale debits Ravi (personal) and credits Sales (nominal); a machine bought by cheque debits Machinery (real) and credits Bank (personal). The modern asset-liability rules give the same entries.
Rent paid in cash, Rs 25,000
Rent A/c Dr 25,000
To Cash A/c 25,000
Goods sold on credit to Ravi, Rs 40,000
Ravi A/c Dr 40,000
To Sales A/c 40,000
Machinery bought by cheque, Rs 1,50,000
Machinery A/c Dr 1,50,000
To Bank A/c 1,50,0002. What is the accounting equation, and how does each transaction keep it in balance?
Assets = Liabilities + Capital. Every transaction changes at least two items by the same amount, so the equation always holds; that is the basis of double entry. In Meena's boutique, capital brings in cash, a credit purchase adds stock and a liability, the sale swaps stock for more cash and the 30,000 margin raises capital, and paying the supplier cuts cash and the liability together. At the end, assets of 5,80,000 (cash 5,20,000 and stock 60,000) equal the supplier's 50,000 plus capital of 5,30,000. Profit increases capital; drawings and losses reduce it.
Meena's boutique, Jaipur Assets = Liabilities + Capital
Starts with cash capital +5,00,000 +5,00,000
Buys goods on credit +1,20,000 +1,20,000
Sells half the goods (cost +90,000
60,000) for 90,000 cash -60,000 +30,000
Pays the supplier 70,000 -70,000 -70,000
Closing 5,80,000 = 50,000 + 5,30,0003. Pass the journal entry for goods of Rs 50,000 bought on credit from a supplier in the same state. Assume CGST 9% and SGST 9%, and that input tax credit is available.
The goods cost 50,000. The tax is not a cost when the credit can be claimed, so it goes to separate input tax ledgers that are later set off against output tax on sales. The supplier is credited with the full invoice value of 59,000, because that is what we owe. An intra-state purchase carries CGST and SGST; an inter-state one would carry IGST instead. If the credit is blocked or cannot be claimed, the tax is added to the cost of the purchase. The usual mistake is debiting Purchases with 59,000 and losing the credit.
Purchases A/c Dr 50,000
Input CGST A/c Dr 4,500
Input SGST A/c Dr 4,500
To Supplier A/c 59,0004. What is the difference between a journal and a ledger, and how does posting work?
The journal is the book of original entry: transactions are recorded date by date, with the accounts debited and credited and a narration. The ledger groups those entries by account, so you see the balance of Cash, Rent or a customer at any time. Posting means copying each journal line to its ledger account on the same side, with a reference back to the journal. At month end each account is balanced and the difference carried down. In practice most entries go through subsidiary books such as the purchase, sales and cash books, and accounting software posts the ledger automatically.
5. What does a trial balance prove, and which errors does it not reveal?
A trial balance lists every ledger balance and checks that total debits equal total credits. Agreement proves the arithmetic of double entry is complete, not that the books are right. It does not reveal errors of omission (a transaction never recorded), errors of commission (posting to the wrong customer's account), errors of principle (a new laptop debited to repairs), compensating errors that cancel each other, or a wrong amount entered in the journal and posted to both sides. That is why reconciliations and a review of the accounts are still needed after the trial balance agrees.
6. How do you decide whether a spend is capital expenditure or revenue expenditure?
Ask whether it gives a benefit beyond the current year or only keeps the business running today. Capital expenditure creates or improves an asset: buying a delivery van, installing a machine, or an upgrade that adds capacity. It goes to the balance sheet and is depreciated. Revenue expenditure is used up in the period: salaries, rent, fuel and routine repairs, charged to profit and loss. Repainting an office for Rs 80,000 is revenue; adding a floor for Rs 8 lakh is capital. Capitalising a repair overstates profit and assets, and expensing a machine understates both.
7. How do you prepare a trading account and find the gross profit and net profit from these figures?
Cost of goods sold is opening stock plus purchases plus direct expenses such as carriage inwards, minus closing stock: 80,000 + 6,00,000 + 20,000 - 1,00,000 = 6,00,000. Gross profit is 9,00,000 - 6,00,000 = 3,00,000, which is 33.33% of sales. The profit and loss account then deducts indirect expenses: salaries, rent and depreciation total 2,10,000, leaving a net profit of 90,000, or 10% of sales. Gross profit shows pricing and buying efficiency; net profit shows what is left after running costs. Putting carriage outwards or office rent in the trading account is a common slip.
Opening stock 80,000 Sales 9,00,000
Purchases 6,00,000 Closing stock 1,00,000
Carriage inwards 20,000
Gross profit c/d 3,00,000
10,00,000 10,00,000
Indirect expenses: salaries 1,20,000, rent 60,000,
depreciation 30,0008. Which basic accounting concepts are asked most often, and what does each mean in practice?
Going concern: we assume the business will keep operating, so assets are shown at cost less depreciation, not at forced-sale value. Accrual: income and expenses are recorded when earned or incurred, not when cash moves. Matching: the costs of earning a revenue go into the same period as that revenue. Consistency: the same methods are used each year so results can be compared. Prudence: probable losses are provided for, but gains are not anticipated. Materiality: small items, such as a Rs 300 stapler, can be expensed even though they last for years.
9. A machine costs Rs 6,00,000 including installation, has a residual value of Rs 60,000 and a useful life of 6 years. What is the straight-line depreciation?
Straight-line depreciation spreads the depreciable amount equally over the useful life: (cost - residual value)/life = (6,00,000 - 60,000)/6 = 90,000 a year. After three years book value is 6,00,000 - 2,70,000 = 3,30,000. Depreciation is charged because the machine is used up in earning revenue; it allocates cost and does not value the machine or set cash aside. Two common errors are ignoring the residual value and leaving out installation and freight, which are part of cost. The written-down value method applies a fixed rate to the falling book value, so it charges more in early years.
10. Why do the cash book and the bank statement rarely show the same balance on a given date?
Most differences are timing. A cheque we issue is entered in our cash book at once but reaches the bank only when the payee presents it; a cheque we deposit is in our books today but is credited by the bank only after clearing. Other items are recorded first by the bank: bank charges, interest, NACH or ECS debits, and customer payments sent straight to the account by NEFT or UPI. Then there are errors on either side, such as a wrong amount. The bank reconciliation statement explains each difference, so the business books the bank-only items and chases anything old or unexplained.
11. How do you record outstanding salary and prepaid insurance at the year end?
Both follow the accrual concept: an expense belongs to the period that used the service, whatever the payment date. March salary of 1,80,000 is an expense of this year even if it is paid in April, so it is debited to Salaries and shown as a current liability. The insurance of 36,000 covers January to December, so only 3 months, 9,000, belong to this year; the other 9 months, 27,000, are moved to a prepaid asset. Next year the liability is cleared when the salary is paid, and the prepaid amount is charged to insurance expense as the months pass.
31 Mar: March salary unpaid, Rs 1,80,000
Salaries A/c Dr 1,80,000
To Outstanding Salaries A/c 1,80,000
31 Mar: insurance Rs 36,000 paid on 1 Jan for 12 months
Prepaid Insurance A/c Dr 27,000
To Insurance A/c 27,00012. Debtors are Rs 8,00,000 before writing off a bad debt of Rs 20,000. The old provision for doubtful debts is Rs 30,000 and the new one is to be 5% of debtors. What is the charge to profit and loss?
First write off the known bad debt, which leaves debtors of 7,80,000. The new provision is 5% of that, 39,000. The profit and loss charge is the bad debt plus the increase in the provision: 20,000 + (39,000 - 30,000) = 29,000. In the balance sheet debtors appear at 7,80,000 less 39,000, which is 7,41,000. A bad debt is a confirmed loss and is removed from the customer's account; a provision is an estimate for debts that may not be collected, so the customer's balance stays. Working out the 5% before removing the bad debt is a frequent mistake.
13. What is a three-way match in accounts payable?
Before an invoice is approved for payment, three documents are compared: the purchase order (what was ordered and at what price), the goods receipt note (what was actually received and accepted) and the supplier's invoice (what we are asked to pay). Quantity, rate, tax and totals must agree within a set tolerance. If a Chennai plant ordered 500 cartons, received 480 and is billed for 500, the invoice is put on hold until a credit note or a revised invoice arrives. Services have no goods receipt, so a service entry or the manager's confirmation takes its place.
14. What is the difference between a debit note and a credit note?
In trade practice the buyer sends a debit note when it returns goods or finds an overcharge, telling the supplier that its account has been debited, and the supplier answers with a credit note confirming the reduction. For goods of 20,000 returned, the buyer passes Supplier A/c Dr 20,000 To Purchase Returns A/c 20,000. Under GST the tax reduction for a return or an overcharge follows the credit note issued by the registered supplier, so AP teams make sure that document arrives, not just their own debit note. Under GST a supplier issues a debit note when it has billed too little.
15. What is a receivables ageing report, and how do you read it?
An ageing report splits each customer's open invoices into time buckets. Here 15% of receivables, 1,50,000, are more than 60 days old. Collectors use it to decide whom to call first, managers use it to spot customers who pay later and later, and accountants use it to estimate the provision for doubtful debts, since older balances are less likely to be recovered. Always check whether the buckets run from the invoice date or the due date: a customer on 45-day credit looks overdue in a 31-60 bucket based on invoice date while still within terms.
Age (days from invoice) Amount (Rs) Share
0-30 6,40,000 64.0%
31-60 2,10,000 21.0%
61-90 95,000 9.5%
Over 90 55,000 5.5%
Total 10,00,000 100.0%16. Calculate the current ratio and the quick ratio from these figures, and explain the difference.
Current ratio = current assets/current liabilities = 9,00,000/6,00,000 = 1.5. The quick ratio leaves out inventory and prepaid expenses, because they cannot be turned into cash quickly: 4,50,000/6,00,000 = 0.75. The gap shows the company depends on selling stock to pay its bills. There is no single ideal value: a grocery chain with fast-moving stock is comfortable with a low ratio, while a machinery maker with slow inventory needs more. Compare with the company's own history and its industry, and check that the receivables are actually collectable.
Inventory 4,00,000
Trade receivables 3,50,000
Cash and bank 1,00,000
Prepaid expenses 50,000
Current liabilities 6,00,00017. What is working capital, and what is the operating cycle?
Working capital is current assets minus current liabilities: the money tied up in running the business day to day. The operating cycle is the time from paying for raw material to collecting cash from the customer: buy material, turn it into finished goods, hold them until sold, then wait for the customer to pay. A Ludhiana garment exporter that holds stock for 60 days and gives buyers 45 days of credit has a long cycle and needs more funding, unless its own suppliers also give credit. Too little working capital causes missed payments; too much means cash idle in stock or slow collections.
18. What is the difference between fixed and variable costs, and what is contribution?
Variable costs change with output: raw material, packing, piece-rate wages, sales commission. Fixed costs stay the same within a range of output: factory rent, salaried staff, insurance. Contribution is selling price minus variable cost per unit, what each unit adds towards fixed costs and profit. A product selling at 500 with a variable cost of 300 contributes 200 a unit, a P/V ratio of 40%. Selling 3,000 units gives contribution of 6,00,000; with fixed costs of 4,00,000, profit is 2,00,000. Fixed cost per unit falls as output rises, so a full cost per unit holds only at one volume.
19. What is the difference between Ind AS and Indian GAAP, and which companies follow Ind AS?
Indian GAAP here means the Accounting Standards (AS) notified for companies, while Ind AS are standards converged with IFRS and notified under the Companies (Indian Accounting Standards) Rules, 2015. Ind AS applies to listed companies, unlisted companies above a net-worth limit set in those rules, and their holding, subsidiary, joint venture and associate companies; banks, insurers and NBFCs have separate roadmaps, so check the current criteria. Ind AS uses more fair value, other comprehensive income, expected credit losses and lease assets. A company that moves to Ind AS cannot go back.
20. What is segregation of duties, and how does an imprest petty cash system work?
Segregation of duties means no single person controls a transaction from start to finish. The person who creates a vendor should not approve its invoices, and the one who approves payments should not also reconcile the bank. Software enforces it as maker-checker: one user enters, another approves. Imprest petty cash starts with a fixed float, say Rs 10,000. The cashier pays small expenses against vouchers and bills, and each week is reimbursed exactly what was spent, restoring the float to 10,000. At any moment cash plus vouchers must equal the float, so a surprise count shows any shortage.
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Accounting and Finance interview questions: Medium questions (1-3 years)
20 questions21. Prepare a bank reconciliation from these items and find the balance the bank statement should show.
First correct the cash book for items the bank already knows about: 2,45,000 - 1,200 + 3,500 + 15,000 = 2,62,300. That is the true bank balance in our books, and those three items are journalised now. Then reconcile to the statement with the timing items: add back cheques issued but not yet presented, because the bank has not paid them, and deduct deposits not yet credited: 2,62,300 + 38,000 - 52,000 = 2,48,300. If the statement shows any other figure, there is an error to trace. Cheques outstanding for months need follow-up and, once stale, reversal.
Cash book balance (debit) on 31 March 2,45,000
Cheques issued, not yet presented 38,000
Cheques deposited, not yet credited by bank 52,000
Bank charges, not in cash book 1,200
Interest credited by bank, not in cash book 3,500
Customer NEFT received, not in cash book 15,00022. Your trial balance does not agree. Which quick checks help you find the difference?
Note the exact difference and recheck the totals and the balances carried forward. If the difference divides by 9, look for transposed digits: 6,840 posted as 6,480 leaves 360, and 360/9 = 40 points to two adjacent digits that differ by 4. Any rearrangement of a number's digits changes it by a multiple of 9. If an amount was posted on the wrong side, the difference is twice that amount, so halve it and search for the result. Then search for the difference itself, which may be a figure missing from one side. Only after that park it in a suspense account, and clear it quickly.
23. How do you rectify these errors: furniture of Rs 45,000 debited to Purchases, and the sales book undercast by Rs 10,000?
The furniture error is an error of principle: both sides were posted, so the trial balance still agreed, and the fix is a transfer from Purchases to the asset. Left alone it understates profit and the asset by 45,000 and misses depreciation on the furniture. The undercast sales book is a one-sided error: Sales was credited 10,000 short, so the trial balance credit side was short and the difference went to the credit of a suspense account. Debiting suspense and crediting Sales clears both. Give every rectification a narration that explains the original error.
Furniture A/c Dr 45,000
To Purchases A/c 45,000
Suspense A/c Dr 10,000
To Sales A/c 10,00024. Compare straight-line and written-down value depreciation on a Rs 10,00,000 asset for three years (5-year life with no residual for SLM; assume a 30% WDV rate). Can a company switch methods?
SLM charges 2,00,000 every year; WDV applies 30% to the falling balance, so its charge drops from 3,00,000 to 1,47,000 and totals 6,57,000 in three years. WDV front-loads the expense, which suits assets that lose value or efficiency quickly, such as vehicles and computers. A company should change the method only when another pattern better reflects how the asset's benefits are used up. Under Ind AS 16 and the revised AS 10, a change in depreciation method is a change in accounting estimate, so it applies prospectively to the remaining book value, with no restatement of past years.
Year SLM WDV at 30%
1 2,00,000 3,00,000
2 2,00,000 2,10,000
3 2,00,000 1,47,000
Total 6,00,000 6,57,000
Book value after 3 years: SLM 4,00,000, WDV 3,43,00025. A machine costing Rs 8,00,000, bought on 1 April 2021 and depreciated at 10% a year on cost, is sold on 30 September 2024 for Rs 4,90,000. What is the profit or loss, and the entry? Ignore GST.
Depreciation is 80,000 a year for three full years to 31 March 2024, plus half a year in 2024-25 because the machine was used until 30 September: 2,40,000 + 40,000 = 2,80,000. Book value on the sale date is 8,00,000 - 2,80,000 = 5,20,000, so a sale at 4,90,000 is a loss of 30,000. The entry removes both the cost and the accumulated depreciation and records the cash. Forgetting the part-year depreciation is the usual mistake; it would show a loss of 70,000 instead. Also retire the asset in the fixed asset register so the next depreciation run skips it.
Bank A/c Dr 4,90,000
Accumulated Depreciation A/c Dr 2,80,000
Loss on Sale of Machinery A/c Dr 30,000
To Machinery A/c 8,00,00026. Goods worth Rs 3,40,000 were received on 29 March, but the supplier's invoice arrives on 6 April. How do you handle this at the year end?
The goods are ours on receipt, and if they are used or sold in March their cost belongs to March, so the liability must be recorded without waiting for the invoice. In an ERP the goods receipt itself credits a GR/IR or GRN-not-invoiced clearing account, and the invoice clears it. In manual books you pass an accrual at the PO rate and reverse it on 1 April before booking the invoice, so the cost is not counted twice. Input GST is claimed on the invoice, not on the accrual. Review the GRNI balance monthly: old items mean missing invoices, price differences or receipts that should be cancelled.
31 Mar Purchases (or Inventory) A/c Dr 3,40,000
To GRN Not Invoiced A/c 3,40,000
1 Apr Reverse the entry above
6 Apr Book the supplier invoice in AP as usual27. A Pune IT services firm bills a client Rs 6,00,000 on 1 January for a 12-month support contract. How much is revenue for the year ending 31 March? Ignore GST.
Only 3 of the 12 months of service have been delivered by 31 March, so revenue is 6,00,000 x 3/12 = 1,50,000. The remaining 4,50,000 is a liability, because the firm still owes nine months of support or a refund. Ind AS 115 calls it a contract liability; older books call it income received in advance. Raising an invoice is not the same as earning revenue. Crediting the whole invoice to revenue overstates this year's profit and leaves next year's support costs with no matching income, a point auditors check in every services company.
1 Jan Client A/c Dr 6,00,000
To Contract Liability A/c 6,00,000
31 Mar Contract Liability A/c Dr 1,50,000
To Support Revenue A/c 1,50,00028. Pass the salary entry for an employee with basic pay Rs 30,000, HRA Rs 12,000 and special allowance Rs 8,000. Assume employee and employer PF at 12% of basic each, professional tax of Rs 200 and TDS of Rs 2,500, and ignore PF admin charges.
Gross salary of 50,000 is the expense. The deductions are not company expenses; they are amounts collected from the employee that must be paid to the PF authority, the state and the income tax department, so each is a liability. Net pay is 50,000 - 3,600 - 200 - 2,500 = 43,700. The employer's own PF share is an extra cost with its own expense head, so PF payable totals 7,200. Professional tax differs by state, and PF splits and wage limits follow the current rules, so these values come from the payroll master, not from fixed numbers in a spreadsheet.
Salaries and Wages A/c Dr 50,000
To PF Payable A/c 3,600
To Professional Tax Payable A/c 200
To TDS on Salary Payable A/c 2,500
To Salary Payable A/c 43,700
Employer PF Contribution A/c Dr 3,600
To PF Payable A/c 3,60029. A contractor bills Rs 1,00,000 plus GST at 18% (CGST 9% and SGST 9%). Assume TDS at 2% applies on the value before GST. Pass the entry when the invoice is booked.
TDS is worked out on 1,00,000, not on 1,18,000, because it applies on the value before GST; the CBDT has clarified this where the tax is shown separately on the invoice, but confirm the current guidance. The contractor is credited with 1,18,000 less 2,000, so we pay 1,16,000. The 2,000 is owed to the government: it is deposited by the due date, reported in the quarterly TDS return, and the contractor gets a certificate to claim the credit. Deducting TDS on the GST too, or paying the full invoice and forgetting the deduction, are the classic errors.
Contract Charges A/c Dr 1,00,000
Input CGST A/c Dr 9,000
Input SGST A/c Dr 9,000
To Contractor A/c 1,16,000
To TDS Payable A/c 2,00030. Our books show Rs 4,05,000 payable to a supplier, but the supplier's statement shows Rs 5,42,000. How do you reconcile them?
Explain the 1,37,000 difference item by item, starting from our balance. The 72,000 invoice is genuinely missing on our side, so we book it once the goods and the invoice are verified. The other three items sit correctly in our books and are timing or acceptance issues for the supplier: it will record our payment when it sees the credit, the TDS when it accounts for its tax credit, and our debit note only if it accepts the rejection, usually by issuing a credit note. Send the supplier the reconciliation, agree the open items and keep the written confirmation for the audit.
Balance as per our books 4,05,000
Add: invoice dated 30 Mar not yet booked by us 72,000
Add: our payment on 31 Mar, not yet in their books 40,000
Add: TDS deducted by us, not yet in their books 5,000
Add: our debit note for rejected goods 20,000
Balance as per supplier statement 5,42,00031. A customer pays Rs 1,08,000 against an invoice of Rs 1,18,000 (Rs 1,00,000 plus GST at 18%). Assume it deducted TDS at 10% on the value before GST. How do you apply the receipt?
The invoice is fully settled: 1,08,000 came in as cash and 10,000 was paid to the government on our behalf as tax deducted at source, which we claim against our own income tax. Leaving 10,000 open on the customer's account is a very common AR error in India; it makes the ageing look worse and leads to pointless follow-up calls. Before closing the year, match the TDS receivable with the credits shown in Form 26AS or the annual information statement, and chase customers whose deductions do not appear there, because an unmatched credit may not be allowed.
Bank A/c Dr 1,08,000
TDS Receivable A/c Dr 10,000
To Customer A/c 1,18,00032. A distributor has trade receivables of Rs 18,00,000 and annual credit sales of Rs 1,20,00,000. Work out days sales outstanding and explain what it tells you.
DSO = receivables/credit sales x 365 = 18,00,000/1,20,00,000 x 365 = 54.75, about 55 days. If the standard credit term is 45 days, customers pay about 10 days late on average, and those days of sales are cash the business is funding itself, often through an overdraft. Use average receivables, or the last few months of sales, when sales are seasonal, or a heavy March billing makes DSO look worse than it is. Track DSO monthly next to the ageing report: a rising DSO with flat sales usually points to a few slow customers, disputes, or invoices not yet sent.
33. Calculate inventory turnover and inventory days: cost of goods sold Rs 90,00,000, opening inventory Rs 14,00,000 and closing inventory Rs 16,00,000.
Average inventory is (14,00,000 + 16,00,000)/2 = 15,00,000. Inventory turnover = cost of goods sold/average inventory = 90,00,000/15,00,000 = 6 times a year, and inventory days = 365/6 = about 61 days. Use cost of goods sold, not sales, because inventory is carried at cost; using sales overstates the turnover. Falling turnover can mean slow-moving or obsolete stock, over-buying or a sales slowdown, so look at item-wise ageing next. Very high turnover is not automatically good either: it can mean frequent stock-outs and lost sales.
34. Calculate cash from operating activities by the indirect method from these figures.
Start with profit before tax and add back non-cash and non-operating items: depreciation of 3,00,000 and the 50,000 loss on sale, since sale proceeds belong in investing activities. Then adjust for working capital: a rise in receivables or inventory uses cash, so deduct 4,00,000 and 2,50,000, and a rise in payables saves cash, so add 1,50,000. Finally deduct tax paid. Cash from operations = 12,00,000 + 3,00,000 + 50,000 - 4,00,000 - 2,50,000 + 1,50,000 - 2,80,000 = 7,70,000. The signs of working capital changes are where most candidates slip.
Profit before tax 12,00,000
Depreciation 3,00,000
Loss on sale of machinery 50,000
Increase in trade receivables 4,00,000
Increase in inventory 2,50,000
Increase in trade payables 1,50,000
Income tax paid 2,80,00035. What is the cash conversion cycle? Work it out from these figures.
It is the number of days cash stays locked up between paying suppliers and collecting from customers: inventory days plus receivable days minus payable days. Daily cost of goods sold is 20,000 and daily sales 30,000, so inventory days = 9,60,000/20,000 = 48, receivable days = 15,60,000/30,000 = 52, and payable days = 7,00,000/20,000 = 35. The cycle is 48 + 52 - 35 = 65 days. Shortening it releases cash through faster collections, leaner stock or longer supplier credit. Stretching suppliers too far damages relationships and can breach legal payment limits for micro and small suppliers.
Cost of goods sold (year) 73,00,000
Credit sales (year) 1,09,50,000
Average inventory 9,60,000
Average trade receivables 15,60,000
Average trade payables 7,00,00036. A product sells at Rs 1,200 a unit with a variable cost of Rs 720 and monthly fixed costs of Rs 9,60,000. Find the break-even point and the margin of safety at sales of 2,600 units.
Contribution per unit is 1,200 - 720 = 480, a P/V ratio of 40%. Break-even units = fixed costs/contribution per unit = 9,60,000/480 = 2,000 units, or 24,00,000 of sales. At 2,600 units the margin of safety is 600 units, which is 23.08% of sales or 7,20,000 in value. Profit equals the margin of safety times contribution: 600 x 480 = 2,88,000. The margin of safety tells management how far sales can fall before a loss. Break-even assumes a constant price, a constant variable cost and a fixed product mix, so treat it as a guide, not a forecast.
37. Opening stock is 200 units at Rs 40 and a purchase adds 300 units at Rs 50; then 400 units are issued. Compare FIFO and weighted average cost.
Under FIFO the issue uses the oldest units first: 200 x 40 + 200 x 50 = 18,000, leaving 100 units at 50, or 5,000, in closing stock. Under weighted average the unit cost is 23,000/500 = 46, so the issue costs 18,400 and closing stock is 4,600. When prices are rising, FIFO gives a lower cost of goods sold, a higher closing stock and a higher profit, here by 400. LIFO is not allowed under AS 2 or Ind AS 2. The chosen method must be applied consistently, and inventory is carried at the lower of cost and net realisable value.
38. Explain the five-step revenue model in Ind AS 115 with an example.
Step 1: identify the contract with the customer. Step 2: identify the performance obligations, the distinct goods or services promised. Step 3: determine the transaction price, including variable amounts such as discounts. Step 4: allocate the price to each obligation using standalone selling prices. Step 5: recognise revenue when, or as, each obligation is satisfied by transferring control. For a Noida firm selling a laptop with two years of on-site service, laptop revenue is recognised on delivery and service revenue over the two years. AS 9 looks at transfer of risks and rewards instead.
39. Your Mumbai company shows Rs 12,40,000 receivable from its Bengaluru subsidiary, which shows only Rs 11,90,000 payable. How do you resolve the difference before consolidation?
The two balances must agree exactly, because they are eliminated against each other on consolidation; any gap would be left behind as a false asset or liability. Here the gap is 50,000. Typical causes are an invoice or debit note booked by one side only, goods or cash in transit at month end, a cost recharge the subsidiary disputes, and, for foreign entities, different exchange rates. Agree a cut-off date, exchange statements, match invoice by invoice and decide who corrects what. Good groups let the seller's invoice drive both entries and settle intercompany balances early.
40. Why does closing stock usually appear outside the trial balance, and when does it appear inside?
Closing stock comes from a physical count and valuation at the year end, after the ledger has been balanced, so it is not a ledger balance in the trial balance. It is brought in by an adjustment, Closing Stock A/c Dr To Trading A/c, which reduces the cost of goods sold and shows the stock as a current asset. If the books already hold the entry, as with adjusted purchases (purchases less closing stock) or a perpetual inventory system in an ERP, closing stock does appear in the trial balance. It then goes only to the balance sheet; adding it to the trading account again counts it twice.
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Accounting and Finance interview questions: Hard questions (experienced)
20 questions41. Under Ind AS 116, how does a lessee account for a 5-year office lease with annual rent of Rs 10,00,000 paid at the end of each year, at an incremental borrowing rate of 10%?
The lessee records a lease liability at the present value of the payments, 37,90,787, and a right-of-use asset of the same amount (plus initial direct costs). Interest is charged on the liability each year and the payment reduces it; the asset is depreciated straight-line over 5 years at 7,58,157. Year 1 expense is 11,37,236, more than the 10,00,000 rent, because interest is front-loaded; over the full term the totals match. Both EBITDA and debt rise, which can affect loan covenants. Leases of 12 months or less and low-value assets may be expensed. Under AS 19 it stayed off the balance sheet.
Year Opening liab. Interest 10% Payment Closing liab.
1 37,90,787 3,79,079 10,00,000 31,69,866
Year 1 profit and loss: interest 3,79,079
+ depreciation 7,58,157 = 11,37,236
Under AS 19 (operating lease): rent expense 10,00,00042. A Hyderabad software firm sells a licence, two years of support and implementation as one package for Rs 30,00,000. Standalone prices are Rs 20,00,000, Rs 8,00,000 and Rs 7,00,000. How is the price allocated and recognised under Ind AS 115?
The 5,00,000 discount is spread over all three obligations in proportion to standalone selling prices, unless it clearly relates to only some of them. A licence to use the software as it exists is recognised at the point the customer can first use it; support is recognised evenly over 24 months; implementation is recognised over time if it meets the over-time criteria, otherwise on completion. If implementation significantly customises the software, the licence and implementation are not distinct and form one obligation. Booking the whole 30,00,000 on signing is the error to avoid.
Item Standalone Share Allocated
Licence 20,00,000 20/35 17,14,286
Support 8,00,000 8/35 6,85,714
Implementation 7,00,000 7/35 6,00,000
Total 35,00,000 30,00,00043. An asset costs Rs 20,00,000. Book depreciation in year 1 is Rs 2,00,000; assume tax depreciation of Rs 3,00,000 and a tax rate of 25%. What deferred tax arises, and how do Ind AS 12 and AS 22 differ?
The books carry the asset at 18,00,000 but its tax base is only 17,00,000, so future taxable profit will be higher by 1,00,000 when the difference reverses. At the assumed 25% that is a deferred tax liability of 25,000. Ind AS 12 uses this balance sheet approach, comparing carrying amounts with tax bases, so it also covers revaluations. AS 22 uses an income statement approach based on timing differences between book and tax profit. For deferred tax assets on unabsorbed depreciation or carried-forward losses, AS 22 needs virtual certainty, while Ind AS 12 needs probable future taxable profit.
Carrying amount (books) 18,00,000
Tax base 17,00,000
Taxable temporary difference 1,00,000
Deferred tax liability 25,000 (1,00,000 x 25%)
Deferred Tax Expense A/c Dr 25,000
To Deferred Tax Liability A/c 25,00044. How would you build an expected credit loss allowance for trade receivables under Ind AS 109 using a provision matrix?
For trade receivables without a significant financing component, Ind AS 109 requires the simplified approach: a lifetime expected loss from day one, not only after a customer defaults. Group balances by age, and by customer type if risk differs, derive loss rates from two or three years of actual write-offs, then adjust them for forward-looking information such as a slowdown in the customers' sector. The matrix here gives 3,34,000; if the existing allowance is 2,50,000, the top-up of 84,000 goes to profit and loss. Customers known to be in trouble are assessed separately.
Bucket Balance Loss rate ECL
Not yet due 40,00,000 0.5% 20,000
1-30 days 15,00,000 2% 30,000
31-90 days 8,00,000 8% 64,000
91-180 days 4,00,000 25% 1,00,000
Over 180 days 2,00,000 60% 1,20,000
Total 69,00,000 3,34,00045. An exporter invoices USD 50,000 on 10 March. Assume the rate is Rs 83.00 that day, Rs 83.60 on 31 March, and Rs 83.20 on 20 April when the customer pays. How are the exchange differences recorded?
Revenue stays at 41,50,000, translated at the rate on the transaction date. The receivable is a monetary item, so at the year end it is restated at the closing rate and the 30,000 gain goes to profit and loss for the year; Ind AS 21 and AS 11 agree on this. When the cash arrives at 83.20, the receivable carried at 41,80,000 is settled for 41,60,000, so next year shows a loss of 20,000. The net gain on the whole transaction is 10,000. Do not adjust the sales figure for exchange movements, and do not skip the year-end restatement just because the money has not come in yet.
10 Mar Receivable recorded 50,000 x 83.00 = 41,50,000
31 Mar Restated at closing 50,000 x 83.60 = 41,80,000
Exchange gain this year 30,000
20 Apr Cash received 50,000 x 83.20 = 41,60,000
Exchange loss next year 20,00046. A Coimbatore pump maker sold 10,000 pumps with a one-year warranty. Past data shows 8% need a minor repair costing Rs 1,500 and 2% a major repair costing Rs 6,000. What provision is needed, and how does it differ from a contingent liability?
The warranty is a present obligation from a past event, the sale, and an outflow is probable across the whole population, so Ind AS 37 requires a provision at the expected value: 10,000 x (8% x 1,500 + 2% x 6,000) = 10,000 x 240 = 24,00,000. It is charged to cost of sales, used as claims come in, and re-estimated against actual claims each quarter. A contingent liability is a possible obligation, or one whose outflow is not probable or cannot be measured reliably, such as a customer lawsuit the lawyers expect to win. It is disclosed, not provided; a remote one is not disclosed at all.
47. A machine has a carrying amount of Rs 1,20,00,000 and 5 years of life left. Its fair value less costs of disposal is Rs 85,00,000 and its value in use Rs 95,00,000. Is it impaired under Ind AS 36, and what changes afterwards?
Recoverable amount is the higher of fair value less costs of disposal and value in use, here 95,00,000. The carrying amount of 1,20,00,000 is above it, so an impairment loss of 25,00,000 goes to profit and loss and the asset is written down. Future depreciation is based on the new amount: 19,00,000 a year over the 5 years instead of 24,00,000. Assets are tested when there is an indication, such as falling demand or physical damage; goodwill every year. A later reversal is allowed for assets other than goodwill, but only up to the depreciated cost that would otherwise have applied.
48. What is the cost of a machine under Ind AS 16 from these items? Assume GST at 18% is fully claimable as input tax credit.
Cost is the purchase price after trade discounts plus costs directly needed to bring the asset to working condition at its site: 40,00,000 + 60,000 + 1,40,000 + 50,000 = 42,50,000. GST is left out because it is recovered as input tax credit; it is capitalised only when the credit is not available. Operator training and head-office overheads are expensed, since the machine works without them. Since the 2022 amendment to Ind AS 16, proceeds from selling items made during testing go to profit and loss instead of reducing cost. Capitalising training or recoverable GST overstates the asset.
List price 42,00,000
Trade discount on the invoice 2,00,000
GST at 18% on 40,00,000 7,20,000
Freight to the factory 60,000
Installation and foundation 1,40,000
Testing that it works properly 50,000
Training of operators 30,000
Share of head-office admin costs 25,00049. A Bengaluru D2C brand receives thousands of card and UPI payments a day through a payment gateway that settles the next day, net of fees. Assume a fee of 2% plus GST at 18% on the fee. How do you reconcile it?
Use a gateway clearing account. Each paid order debits clearing, each refund credits it, and the settlement entry credits it for collections net of refunds, with the fee and its GST booked as expense and input credit. The bank shows one figure, 11,90,500, so match at transaction level: take the gateway's settlement report, match order IDs to the sales system and settlement IDs to bank credits, using a script or the ERP's matching rules. What remains in clearing should be only unsettled recent items; older balances mean failed settlements, chargebacks or payments with no order recorded.
Gross collections (day) 12,50,000
Less refunds 30,000
Less gateway fee at 2% 25,000
Less GST on fee at 18% 4,500
Settlement credited to bank 11,90,500
Bank A/c Dr 11,90,500
Gateway Charges A/c Dr 25,000
Input GST A/c Dr 4,500
To Gateway Clearing A/c 12,20,00050. As a finance lead, which controls would you put on the vendor master and payment runs to stop fraud and duplicate payments?
Vendor master: create and edit vendors under maker-checker, validate PAN and GSTIN, compare new vendors with existing ones by PAN, bank account and address, and never let the person who sets up vendors approve payments. Treat bank-detail changes as high risk: confirm by calling a number already on file, not one given in the request, and hold the first payment after a change for review. Invoices: block duplicates on vendor, invoice number, date and amount, with fuzzy matching for typos. Payment runs: approve the batch in the ERP and lock the bank file. Review the vendor change log monthly.
51. A supplier offers terms of 2/10, net 30: a 2% discount if paid within 10 days, otherwise the full amount in 30 days. What is the annualised cost of skipping the discount, and when would you take it?
Skipping the discount means paying 2% more to keep 98% of the money for 20 extra days. The annualised cost is 2/98 x 365/20 = about 37.24%, and about 44.59% if compounded. On a 5,00,000 invoice, paying on day 10 costs 4,90,000, a saving of 10,000. If cash is short, it is usually cheaper to draw on a working capital line to take the discount, because bank borrowing normally costs far less than that. Make sure the AP process can approve invoices inside the ten days: many companies lose these discounts because approvals are slow, not because cash is short.
52. A Pune distributor grows sales from Rs 6 crore to Rs 9 crore at a 5% net margin. Receivable days are 60, inventory days 45 and payable days 30, all measured on sales for simplicity. Why might it run short of cash?
Its net working capital need is about 75 days of sales (60 + 45 - 30). At 6 crore that is 1,23,28,767; at 9 crore it is 1,84,93,151, so growth locks up an extra 61,64,384. The year's profit is only 45,00,000 (5% of 9 crore), so even before capex or loan repayments the business is short by about 16,64,384 and must borrow or bring in equity. This is overtrading: profitable growth that outruns cash. The fixes are faster collections, leaner stock, better supplier terms, or growth paced to the funding available. Plan working capital together with the sales budget.
53. Two companies both earn a 15% return on equity. How does a DuPont analysis show which one is better placed?
DuPont splits ROE into net margin x asset turnover x equity multiplier (assets/equity). A earns 15% through a 6% margin on a heavier asset base; B earns the same 15% on a thin 3% margin by turning its assets over twice as fast. Both use the same leverage. B is more exposed to a small price cut or cost rise: one point off its margin cuts its ROE by a third, while A loses only a sixth. A, in turn, must keep its plant busy. Always ask where ROE comes from, because a high ROE driven mainly by debt is the riskiest kind.
Company A Company B
Sales 50 crore 50 crore
Net profit 3 crore 1.5 crore
Total assets 40 crore 20 crore
Equity 20 crore 10 crore
Net margin 6.0% 3.0%
Asset turnover 1.25 2.50
Equity multiplier 2.0 2.0
ROE 15.0% 15.0%54. A bank's sanction letter sets a minimum debt service coverage ratio. Compute DSCR and interest coverage from these figures. What do you watch?
With the definition shown, DSCR = (2,40,00,000 - 30,00,000)/(40,00,000 + 80,00,000) = 1.75, so cash available covers the year's debt service 1.75 times. Interest coverage = EBIT/interest = (2,40,00,000 - 50,00,000)/40,00,000 = 4.75. The key point is that DSCR definitions differ between lenders, so compute it exactly as the sanction letter defines it, including how lease payments and one-off items are treated. Forecast it every quarter: a breach can trigger penal charges or a recall, and asking the bank for a waiver before the breach goes far better than after it.
EBITDA 2,40,00,000
Depreciation 50,00,000
Income tax paid 30,00,000
Interest 40,00,000
Principal repayments 80,00,000
DSCR = (EBITDA - tax paid) / (interest + principal)55. The standard is 4 kg of material per unit at Rs 50 a kg. For 1,000 units, 4,300 kg were bought and used at Rs 48 a kg. Calculate the material price and usage variances.
Price variance = (standard price - actual price) x actual quantity = (50 - 48) x 4,300 = 8,600 favourable. Usage variance = (standard quantity - actual quantity) x standard price = (4,000 - 4,300) x 50 = 15,000 adverse. The total material cost variance is standard cost 2,00,000 minus actual cost 2,06,400 = 6,400 adverse, which equals 8,600 F less 15,000 A. Do not stop at the numbers: cheaper material may be a lower grade that causes the extra wastage, so the purchase saving and the production loss may be one problem. Purchasing usually owns price and production owns usage.
56. A plant with capacity for 10,000 units sells 7,000 at Rs 900. Variable cost is Rs 550 a unit and fixed costs are Rs 21,00,000. An export buyer offers to take 2,000 units at Rs 650 with Rs 20 a unit of extra packing. Should it accept?
Full cost at 7,000 units is 550 + 300 = 850 a unit, so 650 looks like a loss. But fixed costs do not change with this order and the plant has spare capacity. Relevant revenue is 650 and relevant cost 550 + 20 = 570, an incremental contribution of 80 x 2,000 = 1,60,000, so profit rises from 3,50,000 to 5,10,000. Accept, provided the order does not displace regular sales, the export price does not leak into the home market and undercut regular customers, and no extra fixed cost such as a new shift is needed. Marginal costing, not full costing, fits this one-off decision.
57. How would you bring a month-end close down from ten working days to three or four?
Move work out of the close window. Reconcile bank, vendor and intercompany balances weekly, so day one has few surprises. Set cut-off rules and a close calendar with an owner and a deadline for every task. Post recurring entries (depreciation, prepaid amortisation, standard accruals) from schedules, with auto-reversal. Estimate accruals two days before month end from POs and goods receipts instead of waiting for invoices, and set a materiality limit for late items. Review the trial balance against budget and last month, and track close-day measures so every delay has an owner.
58. You lead the finance team of a Gurugram company before its statutory audit. How do you prepare, and how do you handle audit findings?
Start from the auditor's requirement list and build a file that ties every balance sheet line to the trial balance: reconciliations, schedules, the fixed asset register, ageing, stock count sheets, and key contracts. Send balance confirmations to major customers, vendors and banks early. Keep evidence that controls ran, since many companies also get a report on internal financial controls. Answer queries with documents through one tracker with owners and dates. For each proposed adjustment, agree or argue with evidence, then fix the root cause so it does not recur.
59. A parent sells goods costing Rs 16,00,000 to its wholly owned subsidiary for Rs 20,00,000 (cost plus 25%). At the year end 40% of those goods are still in the subsidiary's stock. What is eliminated on consolidation?
From the group's view a sale to itself is not revenue, so 20,00,000 is removed from both sales and purchases. Profit is realised only when goods leave the group. The goods still held are carried at 8,00,000, which includes the parent's mark-up; the profit inside them is 8,00,000 x 25/125 = 1,60,000, not 25% of 8,00,000, because the mark-up is on cost. This reduces consolidated inventory and profit. Under Ind AS the elimination also creates a temporary difference, so deferred tax is recognised on it. Taking 25% of the stock value, 2,00,000, is the common slip.
Intra-group sale eliminated 20,00,000
Goods still in subsidiary's stock 8,00,000
Unrealised profit (8,00,000 x 25/125) 1,60,000
Consolidated P&L A/c Dr 1,60,000
To Inventory A/c 1,60,00060. As part of controls testing, how do you decide which manual journal entries to review out of thousands?
Select by risk, not by random sample alone. Pull the full journal listing and filter for entries that are manual rather than system-generated, posted after the close date or on holidays, made by senior or unusual users, booked to revenue, cash, provisions or suspense, in round amounts, without narration or support, or reversed early in the next period. Entries just below an approval limit deserve a look too. Errors and fraud cluster in these patterns. A SQL query or an Excel pivot on the general ledger export does the filtering. Document the criteria so the test can be repeated each quarter.
Practice questions for November 2026
New every month3 questions from the Accounting and Finance mock test, the way they appear in it. A new set comes on the 1st of every month. Pick your answer, then open it.
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Which of these is a financing activity?
- Buying shares of another company to hold
- Repaying a bank term loan
- Receiving cash from customers
- Paying salaries to staff
Show the answer
Answer: Repaying a bank term loan. Financing activities change the size and make-up of the company's borrowings and equity: taking or repaying loans, issuing shares, paying dividends. Salaries and customer receipts are operating, and buying investments is investing.
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A lessee signs a 5-year office lease that is neither short-term nor low-value. What does it record at the start under Ind AS 116?
- A right-of-use asset and a lease liability at the present value of payments
- Only a rent expense each month, as with an operating lease under AS 19
- The office as owned property, measured at its current market value
- A lease liability only, with no asset shown on the balance sheet
Show the answer
Answer: A right-of-use asset and a lease liability at the present value of payments. Ind AS 116 has one lessee model: the right to use the office is an asset and the promise to pay is a liability, both based on discounted lease payments. The asset is depreciated and interest is charged on the liability.
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A lender looks at a company with total borrowings of Rs 2,40,00,000, cash of Rs 40,00,000 and EBITDA of Rs 80,00,000. What is its net debt to EBITDA?
- 3.5 times
- 3.0 times
- 0.4 times
- 2.5 times
Show the answer
Answer: 2.5 times. Net debt subtracts cash from borrowings: 2,40,00,000 - 40,00,000 = 2,00,00,000. Divided by EBITDA of 80,00,000 gives 2.5 times, roughly the years of operating cash needed to repay the debt.
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