Top 30 Most Common Basic Accounting Questions You Should Prepare For
Written by
James Miller, Career Coach
Navigating the world of accounting, whether you're a student, a recent graduate, or changing careers, requires a solid grasp of foundational principles. Interviews for accounting roles, even entry-level positions, often delve into these basic concepts to assess your understanding of how financial information is tracked, reported, and analyzed. Preparing for these common basic accounting questions is crucial for making a strong impression and demonstrating your potential. It shows you understand the building blocks of financial integrity that underpin all business operations. Mastering the fundamentals is not just about passing an interview; it's about building a robust knowledge base that will serve you throughout your career. From understanding the accounting equation to explaining key financial statements and principles like GAAP or IFRS, proficiency in these areas is non-negotiable. This guide presents 30 essential basic accounting questions frequently encountered, offering insights into why they're asked and how to articulate clear, concise answers. By familiarizing yourself with these core concepts, you'll boost your confidence and readiness for any assessment involving basic accounting knowledge. Remember, a strong foundation is key to building a successful accounting career.
What Are basic accounting questions?
Basic accounting questions cover the fundamental principles, concepts, and processes used to record, summarize, analyze, and interpret financial transactions. They form the core knowledge required to understand how businesses track their financial health. These questions typically revolve around the accounting equation (Assets = Liabilities + Equity), the components of financial statements (Balance Sheet, Income Statement, Cash Flow Statement), the accounting cycle steps, and foundational principles like GAAP, IFRS, accrual accounting, and the matching principle. They might also explore basic terminology such as debit and credit, accounts payable and receivable, depreciation, and different inventory valuation methods. Essentially, basic accounting questions aim to verify an individual's comprehension of the language and mechanics of financial record-keeping and reporting, ensuring they can speak intelligently about how money flows through a business and how its financial position is measured.
Why Do Interviewers Ask basic accounting questions?
Interviewers ask basic accounting questions for several key reasons. Firstly, they need to assess your foundational knowledge. Accounting is a cumulative field; advanced concepts build upon basic ones. Demonstrating a strong understanding of the fundamentals proves you have the necessary prerequisite knowledge for more complex tasks. Secondly, these questions help gauge your problem-solving and analytical skills. Explaining a concept like the matching principle or depreciation requires you to think through its purpose and application. Thirdly, they evaluate your communication skills—can you explain a technical concept clearly and concisely to someone else? This is vital for collaborating with colleagues and reporting financial information. Finally, basic accounting questions help filter candidates. A lack of understanding of core principles indicates that a candidate may require significant training, which can be costly and time-consuming for the employer. Mastering these questions is a sign of preparedness and genuine interest in the field.
What is accounting?
What are the main branches of accounting?
What is the basic accounting equation?
What is GAAP?
What is IFRS?
What is the difference between a debit and a credit?
What are the steps in the accounting process?
What is a cash flow statement?
What is a balance sheet?
What is an income statement?
What is the accounting cycle?
What is the purpose of a trial balance?
What is accrual accounting?
What is depreciation?
What is amortization?
What is the difference between FIFO and LIFO inventory methods?
What is a budget?
What is accounts payable?
What is accounts receivable?
What are current and non-current assets?
How do you handle accounting mistakes?
What qualities make a good accountant?
What is objectivity in accounting?
What is historical cost principle?
What is the matching principle?
What is revenue recognition principle?
What is the full disclosure principle?
What is a journal entry?
What is a ledger?
What is a provision in accounting?
Preview List
1. What is accounting?
Why you might get asked this:
This foundational question tests your basic understanding of accounting's purpose and function as the language of business, ensuring you know its core role.
How to answer:
Define accounting as a systematic process for recording, summarizing, analyzing, and interpreting financial information for decision-making.
Example answer:
Accounting is the process of recording, classifying, summarizing, and interpreting financial transactions to provide useful information for making economic decisions about a business. It's essentially how businesses track their financial performance and position.
2. What are the main branches of accounting?
Why you might get asked this:
Interviewers assess your awareness of different accounting specializations, ensuring you understand financial vs. managerial accounting.
How to answer:
Mention the two primary branches: financial accounting (external users) and managerial accounting (internal users), perhaps briefly noting others.
Example answer:
The two main branches are financial accounting, which prepares statements for external users like investors, and managerial accounting, which provides information for internal management decisions. Cost accounting and tax accounting are other areas.
3. What is the basic accounting equation?
Why you might get asked this:
This is the fundamental principle of double-entry accounting. Knowing it shows you understand how a company's resources are financed.
How to answer:
State the equation clearly: Assets = Liabilities + Equity, explaining what each component represents.
Example answer:
The basic accounting equation is Assets = Liabilities + Equity. It represents that a company's assets (what it owns) are equal to the sum of its liabilities (what it owes to others) and its equity (owner's stake).
4. What is GAAP?
Why you might get asked this:
Knowing GAAP is essential for US-based roles, indicating familiarity with standard financial reporting rules and consistency.
How to answer:
Define GAAP as Generally Accepted Accounting Principles, a set of standards and rules used in the US for financial reporting.
Example answer:
GAAP stands for Generally Accepted Accounting Principles. It's a common set of rules, standards, and procedures that companies in the U.S. must follow when they compile their financial statements to ensure consistency and comparability.
5. What is IFRS?
Why you might get asked this:
This tests your knowledge of global accounting standards, important for international companies or those with global operations.
How to answer:
Define IFRS as International Financial Reporting Standards, the global counterpart to GAAP used in many countries worldwide.
Example answer:
IFRS stands for International Financial Reporting Standards. These are a set of global accounting standards issued by the IASB, used by many countries outside of the U.S. for financial reporting to promote global comparability.
6. What is the difference between a debit and a credit?
Why you might get asked this:
Understanding debits and credits is foundational to recording transactions in double-entry accounting. It's a core mechanic.
How to answer:
Explain their effect on different account types: Debits increase assets/expenses and decrease liabilities/equity/revenue; Credits do the opposite.
Example answer:
In double-entry accounting, a debit increases asset and expense accounts and decreases liability, equity, and revenue accounts. A credit does the opposite: it increases liability, equity, and revenue accounts while decreasing asset and expense accounts.
7. What are the steps in the accounting process?
Why you might get asked this:
This question evaluates your understanding of the flow of financial information from transaction to financial statements.
How to answer:
List the key steps from transaction identification through preparing financial statements and closing entries.
Example answer:
The steps typically include identifying and analyzing transactions, recording them in journals, posting to the ledger, preparing a trial balance, making adjusting entries, preparing financial statements, and finally, closing the books for the period.
8. What is a cash flow statement?
Why you might get asked this:
Knowing this statement shows you understand how cash moves in and out of a company, which is critical for assessing liquidity.
How to answer:
Describe it as a statement showing cash inflows and outflows, categorized into operating, investing, and financing activities over a period.
Example answer:
The cash flow statement reports a company's cash inflows and outflows over a specific period. It categorizes cash movements into operating, investing, and financing activities, providing insight into the company's ability to generate cash and meet its obligations.
9. What is a balance sheet?
Why you might get asked this:
The balance sheet is one of the primary financial statements. Understanding it means you grasp a company's financial position at a snapshot in time.
How to answer:
Define it as a statement showing a company's assets, liabilities, and equity at a specific point in time, linking back to the accounting equation.
Example answer:
The balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific date. It shows what the company owns (assets), what it owes (liabilities), and the owners' stake (equity), following the A=L+E equation.
10. What is an income statement?
Why you might get asked this:
This is another core financial statement. Knowing it shows you understand how a company's profitability is measured over a period.
How to answer:
Describe it as a statement summarizing revenues, expenses, and resulting net income or loss over a specific period.
Example answer:
The income statement, or profit and loss statement, reports a company's financial performance over a specific period. It shows revenues earned and expenses incurred, resulting in either a net income (profit) or a net loss for that period.
11. What is the accounting cycle?
Why you might get asked this:
Similar to the accounting process, this question assesses your understanding of the recurring steps accountants perform each period.
How to answer:
Outline the sequence of accounting activities performed during an accounting period, from recording transactions to preparing financial statements and closing entries.
Example answer:
The accounting cycle is the full sequence of accounting procedures performed during an accounting period. It starts with recording transactions and ends with preparing financial statements and closing temporary accounts, repeating each period.
12. What is the purpose of a trial balance?
Why you might get asked this:
This tests your knowledge of internal checks in the accounting system, specifically ensuring debits equal credits before statements are prepared.
How to answer:
Explain that a trial balance lists all ledger account balances to verify that the total debits equal the total credits, helping detect certain errors.
Example answer:
The purpose of a trial balance is to list all the general ledger accounts and their balances at a specific point in time. Its primary function is to verify that the total of all debit balances equals the total of all credit balances before preparing financial statements.
13. What is accrual accounting?
Why you might get asked this:
Accrual accounting is the standard for most businesses. Understanding it shows you know how revenue and expenses are matched, not just when cash changes hands.
How to answer:
Define accrual accounting as recognizing revenues when earned and expenses when incurred, regardless of when cash is received or paid.
Example answer:
Accrual accounting is an accounting method where revenues and expenses are recorded when they are earned or incurred, respectively, rather than when cash is received or paid. This matches revenues with the expenses that generated them in the same period.
14. What is depreciation?
Why you might get asked this:
Depreciation is a key concept for fixed assets. It tests your understanding of how asset costs are allocated over time.
How to answer:
Explain depreciation as the systematic allocation of the cost of a tangible asset over its useful life, reflecting its usage or wear and tear.
Example answer:
Depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. It reflects how an asset's value is used up or diminishes over time due to wear, tear, or obsolescence.
15. What is amortization?
Why you might get asked this:
This is similar to depreciation but applies to intangible assets, testing your knowledge of different asset types and cost allocation.
How to answer:
Define amortization as the process of spreading the cost of an intangible asset, like a patent or copyright, over its useful life.
Example answer:
Amortization is the systematic process of expensing the cost of an intangible asset over its useful life. Examples include patents, copyrights, or trademarks, similar in concept to depreciation for tangible assets.
16. What is the difference between FIFO and LIFO inventory methods?
Why you might get asked this:
These are common inventory valuation methods. Understanding them shows you grasp how cost flow assumptions impact financial statements.
How to answer:
Explain that FIFO (First-In, First-Out) assumes the oldest inventory is sold first, while LIFO (Last-In, First-Out) assumes the newest inventory is sold first.
Example answer:
FIFO (First-In, First-Out) assumes that the first inventory items purchased are the first ones sold. LIFO (Last-In, First-Out) assumes the last inventory items purchased are the first ones sold. This affects the cost of goods sold and ending inventory values.
17. What is a budget?
Why you might get asked this:
Budgets are fundamental financial planning tools. Knowing this shows you understand forecasting and financial control.
How to answer:
Define a budget as a detailed financial plan outlining expected revenues and expenses over a future period, used for planning and control.
Example answer:
A budget is a financial plan that estimates a company's revenues and expenses for a future period. It serves as a roadmap for financial operations, helping with planning, resource allocation, and controlling spending against projections.
18. What is accounts payable?
Why you might get asked this:
This is a common current liability account. Knowing it demonstrates understanding of short-term obligations.
How to answer:
Describe accounts payable as amounts owed by a company to its suppliers for goods or services received on credit.
Example answer:
Accounts payable represents short-term liabilities owed by a company to its vendors or suppliers for goods or services that have been received but not yet paid for. It's essentially money the company owes out.
19. What is accounts receivable?
Why you might get asked this:
This is a common current asset account. Knowing it shows understanding of money owed to the company from customers.
How to answer:
Define accounts receivable as amounts owed to a company by its customers for goods or services sold on credit.
Example answer:
Accounts receivable represents money owed to a company by its customers for products or services that have been delivered or rendered on credit. It's money the company expects to collect in the near future.
20. What are current and non-current assets?
Why you might get asked this:
This tests your ability to classify assets based on liquidity, a key concept for analyzing a company's financial structure on the balance sheet.
How to answer:
Explain that current assets are expected to be converted to cash or used within one year, while non-current assets are long-term, held for more than a year.
Example answer:
Current assets are assets expected to be converted into cash or used up within one year or the operating cycle, whichever is longer (e.g., cash, inventory). Non-current assets are long-term assets held for more than one year, like property, plant, and equipment.
21. How do you handle accounting mistakes?
Why you might get asked this:
This assesses your understanding of error correction procedures and the importance of maintaining accurate records and financial integrity.
How to answer:
Explain that errors are corrected by making appropriate adjusting journal entries to ensure that accounts and financial statements are accurate.
Example answer:
Accounting mistakes are corrected by making adjusting journal entries to properly reflect the transaction. This might involve reversing an incorrect entry and posting a new one, ensuring all records and financial statements are accurate.
22. What qualities make a good accountant?
Why you might get asked this:
This behavioral question assesses your self-awareness and understanding of the professional attributes required for success in accounting.
How to answer:
List key qualities like attention to detail, integrity, analytical skills, organizational ability, and strong communication skills.
Example answer:
A good accountant needs strong analytical skills, meticulous attention to detail, and high integrity. Good communication and organizational skills are also vital for reporting and managing tasks effectively.
23. What is objectivity in accounting?
Why you might get asked this:
Objectivity is a core principle ensuring reliability. This question checks if you understand the need for unbiased reporting.
How to answer:
Define objectivity as ensuring accounting information is based on verifiable evidence and free from personal bias or opinion.
Example answer:
Objectivity means that accounting information should be based on factual evidence and be free from the personal bias or judgment of the preparer. Data should be verifiable and neutral.
24. What is historical cost principle?
Why you might get asked this:
This is a fundamental principle for asset valuation. It tests your knowledge of how assets are initially recorded.
How to answer:
Explain that assets and transactions are initially recorded at their original cash or equivalent cost at the time of the transaction.
Example answer:
The historical cost principle states that assets should be recorded at their original cost at the time of purchase. This cost is considered the basis for all subsequent accounting for the asset, regardless of market value changes.
25. What is the matching principle?
Why you might get asked this:
This principle is key to accrual accounting and accurate income measurement. It tests your understanding of expense recognition.
How to answer:
Define the matching principle as recognizing expenses in the same period as the revenues they helped generate.
Example answer:
The matching principle requires that expenses be recognized and recorded in the same accounting period as the revenues they helped to generate. This ensures that income is measured accurately by matching costs with related income.
26. What is revenue recognition principle?
Why you might get asked this:
This is another core principle of accrual accounting, focusing on when revenue should be recorded.
How to answer:
Explain that revenue should be recognized when it is earned, regardless of when cash is received.
Example answer:
The revenue recognition principle dictates that revenue should be recognized when it is earned, typically when goods are delivered or services are rendered, not necessarily when the cash is received from the customer.
27. What is the full disclosure principle?
Why you might get asked this:
Transparency is vital in financial reporting. This tests your understanding of the need to provide complete information to users.
How to answer:
Explain that all significant information that is relevant to financial statement users should be included in the statements or their notes.
Example answer:
The full disclosure principle requires that companies report all information that could be relevant to the understanding of the financial statements by users. This includes significant details in the notes to the financial statements.
28. What is a journal entry?
Why you might get asked this:
This gets into the mechanics of transaction recording. It tests your understanding of the first step in the accounting cycle.
How to answer:
Define a journal entry as the record of a financial transaction showing which accounts are debited and credited and by what amounts.
Example answer:
A journal entry is a record of a financial transaction in the general journal. It shows the date, the accounts affected, and the corresponding debit and credit amounts, ensuring the accounting equation remains in balance for each transaction.
29. What is a ledger?
Why you might get asked this:
Knowing what a ledger is shows you understand how transactions are grouped and summarized by account after being journalized.
How to answer:
Define a ledger as a book or file containing all the accounts of a company, summarizing the transactions affecting each account.
Example answer:
A ledger is a collection of all the accounts used by a company. Transactions from the journal are posted to the relevant accounts in the ledger to track the balance and activity of each specific account, like Cash or Accounts Payable.
30. What is a provision in accounting?
Why you might get asked this:
This tests your knowledge of estimating future liabilities, a concept related to the matching principle and prudence.
How to answer:
Explain a provision as an estimated liability for a future expense or loss, where the exact amount or timing is uncertain but probable.
Example answer:
A provision is a liability of uncertain timing or amount. It's an estimated cost or obligation for a future expense or loss that is probable and can be reliably estimated, like a provision for bad debts or warranty costs.
Other Tips to Prepare for a basic accounting questions
Preparing effectively for basic accounting questions involves more than just memorizing definitions; it requires understanding the underlying concepts and how they connect. Start by reviewing fundamental textbooks or reliable online resources that cover the accounting cycle, financial statements, and key principles. Practice explaining concepts out loud or to a friend – this helps solidify your understanding and improves your ability to communicate technical topics clearly. As the famous quote often attributed to Einstein goes, "If you can't explain it simply, you don't understand it well enough." Don't shy away from working through simple practice problems, such as journal entries or calculating basic ratios, as this reinforces the practical application of the concepts. Consider using tools designed to simulate interview conditions. The Verve AI Interview Copilot, for instance, can help you practice answering common accounting questions and provide feedback on your responses. Utilizing resources like Verve AI Interview Copilot (https://vervecopilot.com) can significantly boost your confidence by allowing you to rehearse your answers in a low-pressure environment. Leverage the power of Verve AI Interview Copilot to fine-tune your explanations and ensure you sound knowledgeable and prepared. Another piece of advice: connect the basic accounting questions to real-world business scenarios whenever possible, showing interviewers you can think beyond definitions.
Frequently Asked Questions
Q1: How deep do I need to go for basic accounting questions?
A1: Focus on clear definitions and the purpose of each concept, showing fundamental understanding without excessive jargon.
Q2: Should I memorize exact definitions?
A2: Understand the concepts thoroughly so you can explain them in your own words, which is more effective than rote memorization.
Q3: Are these questions only for entry-level roles?
A3: While common for entry-level, they can also be asked to senior candidates to check foundational knowledge gaps.
Q4: How can I practice answering these questions?
A4: Practice speaking your answers aloud, perhaps recording yourself, or use an AI tool like Verve AI Interview Copilot for simulated practice.
Q5: Is knowing the accounting equation sufficient?
A5: Knowing the equation is vital, but you must also understand what each component represents and how transactions affect them.
Q6: What if I don't know an answer perfectly?
A6: Take a moment, provide the closest answer you know, and state your willingness to learn. Honesty is better than guessing incorrectly.
