FAQs for CG Interviews

Difference between accounts payable and receivable

o Accounts payable are amounts a company owes because it purchased
goods or services on credit from a supplier or vendor. Accounts
receivable are amounts a company has a right to collect because it
sold goods or services on credit to a customer. Accounts payable are
liabilities. Accounts receivable are assets.
o http://www.accountingcoach.com/blog/accounts-payable-accounts-
receivable

What do you mean by Depreciation?

o Depreciation is a systematic and rational process of distributing the
cost of tangible assets over the life of assets.
Depreciation is a process of allocation.
Cost to be allocated = acquisition cot - salvage value
Allocated over the estimated useful life of assets.
Allocation method should be systematic and rational.

OR

o During each accounting period (year, quarter, month, etc.) a portion of

the cost of these assets is being used up. The portion being used up is
reported as Depreciation Expense on the income statement. In effect
depreciation is the transfer of a portion of the asset's cost from the
balance sheet to the income statement during each year of the asset's
life.

What are the different methods of Depreciation?

o Depreciation methods based on time:
Straight line method
Declining balance method
Sum-of-the-years'-digits method
o Depreciation based on use (activity)
o http://accountinginfo.com/study/dep/depreciation-01.htm

What are the different "Accounting Concepts"?

o Rules of accounting that should be followed in preparation of all

accounts and financial statements. The four fundamental concepts are:
Accruals concept: revenue and expenses are recorded when
they occur and not when the cash is received or paid out;
 Consistency concept: once an accounting method has been
chosen, that method should be used unless there is a sound
reason to do otherwise;
Going concern: the business entity for which accounts are being
prepared is in good condition and will continue to be in business
in the foreseeable future;
Prudence concept (also conservation concept): revenue and
profits are included in the balance sheet only when they are
realized (or there is reasonable 'certainty' of realizing them) but
liabilities are included when there is reasonable 'possibility' of
incurring them.
Other concepts include
Accounting equation: total assets equal total liabilities
plus owners' equity;
Accounting period: financial records pertaining only to a
specific period are to be considered in preparing accounts
for that period;
Cost basis: asset value recorded in the account books
should be the actual cost paid, and not the asset's current
market value;
Entity: accounting records reflect the financial activities of
a specific business or organization, not of its owners or
employees;
Full disclosure: financial statements and their notes
should contain all relevant data;
Lower of cost or market value: inventory is valued either
at cost or the market value (whichever is lower);
Maintenance of capital: profit can be realized only after
capital of the firm has been restored to its original level,
or is maintained at a predetermined level;
Matching: transactions affecting both revenues and
expenses should be recognized in the same accounting
period;
Materiality: minor events may be ignored, but the major
ones should be fully disclosed;
Money measurement: the accounting process records only
activities that can be expressed in monetary terms (with
some exceptions);
Objectivity: financial statements should be based only on
verifiable evidence, including an audit trail;
Realization: any change in the market value of an asset or
liability is not recognized as a profit or loss until the asset
is sold or the liability is paid off;
Unit of measurement: financial data should be recorded
with a common unit of measure (dollar, pound sterling,
yen, etc.).
Also called accounting conventions, accounting
postulates, or accounting principles.
Read more: http://www.businessdictionary.com/definition/accounting-
concepts.html#ixzz3i7yVzKQi

What is Reducing Balance Depreciation Method?

o Reducing Balance Method charges depreciation at a higher rate in the
earlier years of an asset. The amount of depreciation reduces as the
life of the asset progresses. Depreciation under reducing balance
method may be calculated as follows:

Depreciation per annum = (Net Book Value - Residual Value) x

Rate%
Where:
o Net Book Value is the asset's net value at the start of
an accounting period. It is calculated by deducting the
accumulated (total) depreciation from the cost of the
fixed asset.
o Residual Value is the estimated scrap value at the end
of the useful life of the asset. As the residual value is
expected to be recovered at the end of an asset's
useful life, there is no need to charge the portion of
cost equaling the residual value.
o Rate of depreciation is defined according to the
estimated pattern of an asset's use over its life term.

See more at: http://accounting-simplified.com/financial/fixed-assets/depreciation-

methods/declining-balance.html#sthash.Us3nd2DB.dpuf

What do you mean by Bills Receivable?

o A bill receivable is a document that your customer formally agrees to
pay at some future date (the maturity date). The bill receivable
document effectively replaces, for the related amount, the open debt
exchanged for the bill. Bills receivable are often remitted for collection
and used to secure short term funding.

What do you mean by Bank Reconciliation Statement?

o A form that allows individuals to compare their personal bank account
records to the bank's records of the individual's account balance in
order to uncover any possible discrepancies.Since there are timing
differences between when data is entered in the banks systems and
when data is entered in the individual's system, there is sometimes a
normal discrepancy between account balances. The goal of
reconciliation is to determine if the discrepancy is due to error rather
than timing. A bank reconciliation statement can be started either with
a cash book balance or with a pass book balance.

What is Commerce?
o Commerce is the activity of buying and selling, especially on a large
scale. The system includes legal, economic, political, social, cultural
and technological systems that are in operation in any country or
 internationally. Thus, commerce is a system or an environment that
affects the business prospects of economies.

What are the Golden Rules of Accounting?

o There are 3 Golden Rules of Accounting:
Debit The Receiver, Credit The Giver: This principle is used in the
case of personal accounts. When a person gives something to
the organization, it becomes an inflow and therefore the person
must be credit in the books of accounts. The converse of this is
also true, which is why the receiver needs to be debited.
Debit What Comes In, Credit What Goes Out: This principle is
applied in case of real accounts. Real accounts involve
machinery, land and building etc. They have a debit balance by
default. Thus when you debit what comes in, you are adding to
the existing account balance. This is exactly what needs to be
done. Similarly when you credit what goes out, you are reducing
the account balance when a tangible asset goes out of the
organization.
Debit All Expenses and Losses, Credit All Incomes and Gains:
This rule is applied when the account in question is a nominal
account. The capital of the company is a liability. Therefore it has
a default credit balance. When you credit all incomes and gains,
you increase the capital and by debiting expenses and losses,
you decrease the capital. This is exactly what needs to be done
for the system to stay in balance.

o The golden rules of accounting allow anyone to be a bookkeeper.

They only need to understand the types of accounts and then
diligently apply the rules.

What is a Suspense Account?

o A suspense account is an account in the general ledger in which
amounts are temporarily recorded. The suspense account is used
because the proper account could not be determined at the time that
the transaction was recorded. When the proper account is determined,
the amount will be moved from the suspense account to the proper
account.

OR

o A suspense account is an account used temporarily to carry doubtful

receipts and disbursements or discrepancies pending their analysis and
permanent classification. It can be a repository for monetary
transactions (cash receipts, cash disbursements & journal entries)
entered with invalid account numbers. The account specified may not
exist, or it may be deleted/frozen. If one of these conditions exists, the
transaction should be directed to a suspense account

What is a Demat Account?

 o In India, shares and securities are held electronically in a
dematerialized account, instead of the investor taking physical
possession of certificates. A Dematerialized account is opened by the
investor while registering with an investment broker (or sub-broker).
The Dematerialized account number is quoted for all transactions to
enable electronic settlements of trades to take place. Every
shareholder will have a Dematerialized account for the purpose of
transacting shares.

o Access to the Dematerialized account requires an internet password

and a transaction password. Transfers or purchases of securities can
then be initiated. Purchases and sales of securities on the
Dematerialized account are automatically made once transactions are
confirmed and completed.

What is a Ledger?

o A ledger is an accounting book that facilitates the transfer of all journal

entries in a chronological sequence to individual accounts. The process
of recording journal entries into the ledger is called posting.

Type of Ledger:
General Ledger: The general ledger accumulates information
from journals. Each month all journals are totalled and posted to
the General Ledger. The purpose of the General Ledger is
therefore to organise and summarise the individual transactions
listed in all the journals.
Debtors Ledger: The Debtors Ledger accumulates information
from the sales journal. The purpose of the Debtors Ledger is to
provide knowledge about which customers owe money to the
business, and how much.
Creditors Ledger: The Creditors Ledger accumulates information
from the purchases journal. The purpose of the Creditors Ledger
is to provide knowledge about which suppliers the business
owes money, and how much.

What is the difference between a general ledger and a general journal?

o Journals are referred to as books of original entry. Accounting entries
are recorded in a journal in order by date. A company might use
special journals (sales, purchases, cash disbursements, cash receipts),
or its accounting software will generate entries for routine transactions,
but there will always be a general journal in which to record nonroutine
transactions, such as depreciation, bad debts, sale of an asset, etc. In
the general journal you must enter the account to be debited and the
account to be credited and the amounts. Once a transaction is
recorded in the general journal, the amounts are then posted to the
appropriate accounts.
 o Accounts (such as Cash, Accounts Receivable, Equipment,
Accumulated Depreciation, Accounts Payable, Sales, Telephone
Expense, etc.) are contained in the general ledger.

o To recap...the general ledger houses the company's accounts. The

general journal is a place to first record an entry before it gets posted
to the appropriate accounts.

What is Balance Sheet?

o The accounting balance sheet is one of the major financial statements

used by accountants and business owners. (The other major financial
statements are the income statement, statement of cash flows, and
statement of stockholders' equity) The balance sheet is also referred to
as the statement of financial position.

o The balance sheet presents a company's financial position at the end

of a specified date. Some describe the balance sheet as a "snapshot"
of the company's financial position at a point (a moment or an instant)
in time. For example, the amounts reported on a balance sheet dated
December 31, 2014 reflect that instant when all the transactions
through December 31 have been recorded.

o Because the balance sheet informs the reader of a company's financial

position as of one moment in time, it allows someonelike a creditor
to see what a company owns as well as what it owes to other parties
as of the date indicated in the heading. This is valuable information to
the banker who wants to determine whether or not a company
qualifies for additional credit or loans. Others who would be interested
in the balance sheet include current investors, potential investors,
company management, suppliers, some customers, competitors,
government agencies, and labor unions.

What is Profit and Loss Account?

o A financial statement that summarizes the revenues, costs and

expenses incurred during a specific period of time - usually a fiscal
quarter or year. These records provide information that shows the
ability of a company to generate profit by increasing revenue and
reducing costs. The P&L statement is also known as a "statement of
profit and loss", an "income statement" or an "income and expense
statement".

o The statement of profit and loss follows a general form as seen in this
example. It begins with an entry for revenue and subtracts from
revenue the costs of running the business, including cost of goods sold,
operating expenses, tax expense and interest expense. The bottom
line (literally and figuratively) is net income (profit). Many templates
 can be found online for free, that can be used in creating your profit
and loss, or income statement.

What is an Invoice? How many types of invoices are there in AP and AR?

o An invoice is a Document created whenever a product or services are

sold. And if the sale is made on credit the invoice remains open in the
Receivables Module until the Funds for it are received. And once the
Funds are received the invoice is closed with the receipt.

There are 8 Types of Invoices:

Standard Invoice.
Debit Memo.
Credit Memo.
Expense Report Invoice.
PO Default Invoice.
Quick Match Invoice.
Fixed Invoice.
Pre - Payment Invoice.

What is Bank Reconciliation Statement?

o Bank reconciliation is a process that explains the difference between

the bank balance shown in an organization's bank statement, as
supplied by the bank, and the corresponding amount shown in the
organization's own accounting records at a particular point in time.

What is shares?
o The capital of a company is divided into shares. Each share forms a
unit of ownership and is offered for sale so as to raise capital for the
company.

o Definition: The capital of a company is divided into shares. Each share

forms a unit of ownership of a company and is offered for sale so as to
raise capital for the company.

o Description: Shares can be broadly divided into two categories - equity

and preference shares. Equity shares give their holders the power to
share the earnings/profits in the company as well as a vote in the
AGMs of the company. Such a shareholder has to share the profits and
also bear the losses incurred by the company.

What is Tax?

o A compulsory contribution to state revenue, levied by the

government on workers' income and business profits, or added to
the cost of some goods, services, and transactions.
 OR
o A fee charged ("levied") by a government on a product, income, or
activity. If tax is levied directly on personal or corporate income,
then it is a direct tax. If tax is levied on the price of a good or
service, then it is called an indirect tax. The purpose of taxation is
to finance government expenditure. One of the most important uses
of taxes is to finance public goods and services, such as street
lighting and street cleaning. Since public goods and services do not
allow a non-payer to be excluded, or allow exclusion by a consumer,
there cannot be a market in the good or service, and so they need
to be provided by the government or a quasi-government agency,
which tend to finance themselves largely through taxes.

What is Tax Rate?

o The tax rate is the tax imposed by the federal government and some
states based on an individual's taxable income or a corporation's
earnings.

OR

o The percentage at which an individual or corporation is taxed. The tax

rate is the tax imposed by the federal government and some states
based on an individual's taxable income or a corporation's earnings.
The United States uses a progressive tax rate system, where the
percentage of tax increases as taxable income.

o A tax rate is the percentage of an individual's taxable income or a

corporation's earning that is owed to the state, federal and in some
cases, municipal governments. In certain municipalities, regional
income taxes are also imposed, increasing the tax burden for those
residents.

What is Nifty?

o The CNX Nifty, also called the Nifty 50 or simply the Nifty, is National
Stock Exchange of India's benchmark stock market index for Indian
equity market. Nifty is owned and managed by India Index Services
and Products (IISL), which is a wholly owned subsidiary of the NSE
Strategic Investment Corporation Limited. IISL had marketing and
licensing agreement with Standard & Poor's for co-branding equity
indices until 2013. The 'CNX' in the name stands for 'CRISIL NSE Index'.

o CNX Nifty has shaped up as a largest single financial product in India,

with an ecosystem comprising: exchange traded funds (onshore and
offshore), exchange-traded futures and options (at NSE in India and at
SGX and CME abroad), other index funds and OTC derivatives (mostly
offshore).
 What do you mean by Capital?

o Wealth in the form of money or assets, taken as a sign of the financial

strength of an individual, organization, or nation, and assumed to be
available for development or investment.

What is a bad debt?

o The term bad debt usually refers to accounts receivable (or trade
accounts receivable) that will not be collected. However, bad debts
can also refer to notes receivable that will not be collected.

o The bad debts associated with accounts receivable is reported on the

income statement as Bad Debts Expense or Uncollectible Accounts
Expense.

What is called up share capital?

o Called up share capital is the total amount of issued capital for which
the shareholders are required to pay. This may be less than the
subscribed capital as the company may ask shareholders to pay by
installments. Paid up share capital is the amount of share capital paid
by the shareholders.

What is Capital Venture?

o Venture capital (VC) is financial capital provided to early-stage, high-

potential, and growth startup companies. The venture capital fund
earns money by owning equity in the companies it invests in, which
usually has a novel technology or business model in high technology
industries, such as biotechnology and IT.

What is shadow balance?

o Shadow Balance in bank accounts is the balance upto which the

subsequent debits/credit can be posted upto.

o Shadow Balance = Book Balance - Debit/ Book Balance + Credit (yet to

be authorised for posting).

o Example: Book balance is 1000. There is a debit of 500. The debit is

posted in the system and is sent for authorisation. At this juncture the
Account shows a Shadow Balance of 500. In the case of credit entry,
Rs. 500 added and the shadow balance will be Rs.1500.

What is Credit Limit?

 o A credit limit is the maximum amount of credit that a financial
institution or other lender will extend to a debtor for a particular line of
credit (sometimes called a credit line, line of credit, or a tradeline). For
example, it is the most that a credit card company will allow a card
holder to take out at once on a credit card.This limit is based on a
variety of factors ranging from an individual's ability to make interest
payments, an organization's cash flow and/or ability to repay the credit
card debt and is an obligation of the consumer to pay just like all other
parts of the balance.

What are sundry expenses?

o Sundry expenses are costs which may be relatively small or occur

infrequently and are therefore not assigned to a specific ledger group.
They are also known as miscellaneous expenses and are classified
together as a group when they are presented in an accounting
statement.

o By definition, sundry expenses do not include regular payments of any

kind or those that would be defined as capital expenses, such as those
related to capital equipment, shares or assets. Sundry expenses,
therefore, do not generally include:
Rent or utility payments
Depreciation or amortization expenses
Accounting or professional fees
Marketing or advertising costs.
Employee benefits

What is Stock Market?

o A stock market or equity market is the aggregation of buyers and

sellers (a loose network of economic transactions, not a physical
facility or discrete entity) of stocks (also called shares); these may
include securities listed on a stock exchange as well as those only
traded privately.

What is stock accounting?

o In accounting there are two common uses of the term stock. One
meaning of stock refers to the goods on hand which is to be sold to
customers. In that situation, stock means inventory.

o The term stock is also used to mean the ownership shares of a

corporation. For example, an owner of a corporation will have a stock
certificate which provides evidence of his or her ownership of a
corporation's common stock or preferred stock. The owner of the
corporation's common or preferred stock is known as a stockholder.

What is the difference between debit note and credit note?

 o Debit note is a note sent by one party to another informing him that
his account is debited in the sender's book.
o Credit note is a note sent by one party to another informing him that
his account is credited in the sender's book.

What is a capital note?

o A capital note is a debt instrument issued by a borrower and registered

into the name of the investor. It carries a fixed interest rate (coupon
rate) and has a specific 'election date'.

o Capital notes are several types of securities. "Capital note" has a

number of meanings, as it can be either an equity security, a debt
security or a form of security used in structured finance. In all cases,
the use of the term "capital" is to denote that the security is relatively
junior in the issuing corporation's order of priorities in claims for its
assets.

o Capital notes are a form of convertible security exercisable into shares.

They are equity vehicles. Capital notes are similar to warrants, except
that they often do not have an expiration date or an exercise price
(hence, the entire consideration the company expects to receive, for its
future issue of shares, is paid when the capital note is issued). Capital
notes may be issued in connection with a debt-for-equity swap
restructuring: instead of promptly issuing the debt-replacing shares,
the company issues convertible securities, in order to postpone the
event of share dilution.

What Is a Credit Invoice?

o A credit note or credit memorandum (memo) is a commercial

document issued by a seller to a buyer. The seller usually issues a
credit memo for the same or lower amount than the invoice, and then
repays the money to the buyer or sets it off against a balance due from
other transactions.

What is tax invoice?

o Under VAT, tax invoice is a very important document. A registered

dealer selling goods to another registered dealer shall issue tax
invoice. A retail invoice is an invoice issued by registered dealers for all
sales where a tax invoice is not authorized to be issued.

What is retail invoice?

o A retail invoice is an invoice issued by the seller to the buyer for the
amount due against the goods sold to him.
 OR

o A retail invoice is an invoice issued by registered dealers for all sales

where a tax invoice is not authorized to be issued. It would not be
necessary to issue retail invoice for the sale value is less than rupees
one hundred.

OR

o A commercial instrument issued by the seller to the purchaser i.e. end

user of the goods, is known as Retail Invoice. Generally, the invoice is
created in duplicate, i.e. original for buyer and duplicate for the seller.
It is used to request for payment from the buyer. Retail invoice can also
be issued on account of interstate sales or sale to an unregistered
dealer.

When is a Suspense Account opened?

o Suspense accounts are used when your trial balance is out of balance
or when you have an unidentified transaction. The suspense account is
a general ledger account that acts as a holding account until the error
is discovered or the unknown transaction is identified. When working
with the trial balance, you can open one suspense account to hold all
of the discrepancies until you find them. However, suspense accounts
are temporary accounts that must be closed by the end of your
accounting cycle.

What is a Realisation Account?

o On dissolution of a firm, all the books of account are closed, all assets
are sold and all liabilities are paid off. In order to record the sale of
assets and discharge of liabilities, a nominal account is opened named
Realisation Account. The main purpose to open Realisation Account is
to ascertain the profit or loss due to the realisation of assets and
liabilities. Realisation profit (if credit side > debit side) or realisation
loss (if debit side > credit side) are transferred to the Partner's Capital
Account in their profit sharing ratio.

o Following are the important objectives of preparing Realisation

Account:
To close all the books of account.
To record transactions relating to the sale of assets and
discharge of liabilities.
To determine profit or loss due to the realisation of assets and
liabilities.

What is a Debit Card?

What is a Debit Card?

o A debit card (also known as a bank card or check card) is a plastic
payment card that provides the cardholder electronic access to their
bank account(s) at a financial institution. Some cards may bear a
stored value with which a payment is made, while most relay a
message to the cardholder's bank to withdraw funds from a payer's
designated bank account. The card, where accepted, can be used
instead of cash when making purchases. In some cases, the primary
account number is assigned exclusively for use on the Internet and
there is no physical card.