Real Time Accounts And Finance For Managers Interview Questions and Answers for freshers and experienced pdf
.
• Define Accounting?
According to American Institute of Certified Public Accountants (AICPA), "Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which are, in part at least, of a financial character and interpreting the results there of."
American Accounting Association (AAA) has defined accounting as "the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information."
• What Are Its Objectives?
o To record the business transactions in a systematic manner.
o To determine the gross profit and net profit earned by a firm during a specific period.
o To know the financial position of a firm at the close of the financial year by way of preparing the balance sheet.
o To facilitate management control.
o To assess the taxable income and the sales tax liability.
o To provide requisite information to different parties, i.e., owners, creditors, employees, management, Government, investors, financial institutions, banks etc.
• What Are Its Characteristics?
o Accounting is the art of recording and classifying different business transactions.
o The business transactions may be completely or partially of financial nature.
o Generally the business transactions are described in monetary terms.
o In accounting process, the business transactions are summarized and analyzed so as to arrive at a meaningful interpretation.
o The analysis and interpretations thus obtained are communicated to those who are responsible to take certain decisions to determine the future course of business.
• What Are Its Limitations?
o Accounting information is expressed in terms of money. Non monetary events or transactions, however important, are completely omitted.
o Fixed assets are recorded in the accounting records at the original cost, that is, the actual amount spent on them plus all incidental charges. In this way the effect of inflation (or deflation) is not taken into consideration.
o Accounting information is sometimes based on estimates; estimates are often inaccurate.
o Accounting information cannot be used as the only test of managerial performance on the basis of more profits.
o Accounting information is not neutral or unbiased. Accountants calculate income as excess of revenues over expenses. But they consider only selected revenues and expenses.
• What Are The Various Functions Of Accounting?
o Recording: Accounting records business transactions in terms of money. It is essentially concerned with ensuring that all business transactions of financial nature are properly recorded.
o Classifying: Accounting also facilitates classification of all business transactions recorded in journal. Items of similar nature are classified under appropriate heads.
o Summarizing: Accounting summarizes the classified information. It is done in a manner, which is useful to the internal and external users. Internal users interested in these information’s are the persons who manage the business.
o Interpreting: It implies analyzing and interpreting the financial data embodied in final accounts. Interpretation of the data helps the management, outsiders and shareholders in decision making.
• Explain The Different Systems Of Accounting?
o Cash Basis Accounting: According to this system, only actual cash receipts and payments are recorded in the books. The credit transactions are not recorded at all, till actual cash is received or paid.
o Mercantile or Accrual System: According to this system, all the business transactions pertaining to the specific period, whether of cash or credit nature, are recorded in the books. This system of accounting is based on accrual concept, which states that revenue is recognized when it is earned and expense is recognized when obligation of payment arises.
o Mixed System: Mixed system is modified form of pure-cash-basis accounting. Because of the fact that pure cash basis would result in balance sheet and income statement with limited use, it necessitates the need of mixed accounting in which some items (especially sales and period costs are treated on cash basis and some items (especially product costs and long-lived assets) are treated on accrual basis.
• What Is Financial Accounting ?
Financial or traditional accounting consists of the classification, recording, and analysis of the transactions of a business in a subjective manner according to the nature of expenditure so as to enable the presentation at periodic intervals, of statements of profit or loss of the business and, on a specified date, of its financial state of affairs.
• What Is Management Accounting ?
Management accounting includes all those accounting services by means of which assistance is rendered to the management at all levels, in formulation of policy, fixation of plans, control of their execution, and measurement of performance. Management accounting is primarily concerned with the supply of information which is useful to the management in decision making for the efficient running of the business and thus, in maximizing profit.
• What Is Social Responsibility Accounting ?
Social responsibility accounting is a new phase in the development of accounting and owes its birth to increasing social awareness, which has been particularly noticeable over the last two decades or so. Social responsibility accounting widens the scope of accounting by considering the social effects of business decisions, in addition to the economic effects. The role of business in society is increasingly coming under greater scrutiny.
• What Is Human Resource Accounting ?
It is another new field of accounting which seeks to report and emphasize the importance of human resources in a company's earnings. It is based on the fact that the only real long lasting asset which an organization possesses is the quality of the people working in it. This system of accounting is concerned with " the process of identifying and measuring data about human resources and communicating this information to interested parties."
• How Does Management Accounting Differs From Financial Accounting?
Financial or traditional accounting consists of the classification, recording, and analysis of the transactions of a business in a subjective manner according to the nature of expenditure so as to enable the presentation at periodic intervals, of statements of profit or loss of the business and, on a specified date, of its financial state of affairs. The day-to-day transactions journalized or recorded in subsidiary books are posted in the various ledgers and at the end of the accounting period, a Profit and Loss Account and a Balance Sheet are prepared.
• What Is The Difference Between Expenses And Expenditure?
Expense is the outflow from a profit oriented organization while expenditure is the outflow from non-profit organization.
• What Are Differences Between Financial Accounting And Management Accounting?
Financial Accounting: Financial accounting depicts the past position of the concern, while management accounting stresses at future. Financial accounting is mandatory for all joint stock companies and business organizations but this is not the case with management accounting.
Management Accounting: Management accounting provides data to managers to help them in making decisions about the future. To the contrary, financial accounting aims at meeting the requirements of outside parties who have financial stake in the business.
• Discuss The Role Of Accountants In Modern Business Organization?
Role of Accountants in Modern Business Organization:
o Writing up Accounts for Preparing Financial Statements
o Audit of Accounts
o Role as Management Accountant
o Help to government, Revenue Department and Tax Payer
o Role as Cost Accountant
o Role in Merger, Liquidation
• Write A Short Note On Finance Officer?
Finance is the life blood of business. Procuring financial resources and their judicious utilization are the two important activities of financial management which is a specialized function. The finance manager has to strike a balance between the current needs of the enterprise for cash and the needs of the shareholders for adequate return. Often finance manager and controller are inter-changeable terms and only one of these two positions may be found in a company.
• What Do You Mean By Basic Accounting Concepts?
Accounting has come to present status after a period of several hundred years. During this period certain accounting assumptions, concepts and conventions have emerged. Accountants universally in the recording, classification, summarization and reporting of the transactions follow these. Accounting assumptions, concepts and conventions are called Generally Accepted Accounting Principles (GAAP) since they have been commonly accepted by professional accounting world as general guidelines for preparing financial statements and reports.
• List The Basic Accounting Concepts?
The Institute of Chartered Accountants of India in its Accounting Standard-I (AS-I) has stated that going concern, accrual and consistency are fundamental accounting assumptions. For the sake of convenience all accounting concepts are discussed under two headings:
o Basic accounting concepts.
o Accounting concepts related to income measurement.
• What Are Basic Accounting Concepts?
Basic Accounting Concepts are:
o Entity Concept.
o Money Measurement Concept.
o Going Concern Concept.
o Cost Concept.
o Dual Aspect Concept.
o Full Disclosure Concept.
o Objectivity Concept.
o Accrual Concept.
• What Are Accounting Concepts Related To Income Measurement?
Accounting concepts related to income measurement are:
o The Time Period Concept (Periodicity Concept).
o The Revenue Recognition (Realization) Concept.
o The Matching Concept.
o The Materiality Concept.
o The Consistency Concept.
o The Conservatism (Prudence) Concept.
• Discuss The Importance Of Setting Accounting Standards?
Following is the importance of accounting standards:
o Standards reduce or eliminate all together confusing variations in the accounting treatment used to prepare financial statements.
o With different companies following same standards, comparison of their financial policies and financial results becomes easier.
o Accounting standards take care of valuing inventories, contingencies, construction contracts, fixed costs, etc. They cover all aspects of financial activities of company.
o The standards help the investors for taking decision on investment.
o Setting standards is useful to both the company & and the investor.
• What Are The Purposes Of Accounting Information?
Score Keeping:
The score-keeping function is one the primary purposes of accounting information. It basically deals with the financial health of the enterprise.
Attention Directing :
Attention directing is nothing but the process of giving a signal to the user of accounting information about the need to take a decision. As such the accounting information supplied the user’s attention to take decision.
Problem Solving:
The problem solving function of accounting information involves provisions of such information, which enables the manager to find solutions to the problems.
• What Are The Uses Of Earnings Information?
o Accomplishments.
o Appropriation Decision.
o Problem Identification Using Earning Data.
o Determining the Market Value of a Firm.
• What Is A Balance Sheet?
After ascertaining the profit or loss of the business, the businessman wants to know the financial position of his business. For this purpose he prepares a statement of Assets and Liabilities, which is called Balance Sheet.
• What Are The Objectives Of Preparing Balance Sheet?
Principal Objective:
The main purpose of preparing balance sheet is to know the financial position of the business at a particular date.
Subsidiary Objectives:
Though the main aim is to know the exact financial position of the firm at a particular date, yet it serves other purpose as well.
o It gives information about the actual and real owner’s equity. Though the capital of the owner indicates owner’s equity, yet some other liabilities are to be accounted for against it also.
o It helps the firm to make provisions against possible future losses. A provision is made in the form of the Reserves.
• Explain Its Characteristics Of Balance Sheet?
The Balance Sheet as distinct from other financial statements has the following characteristics:
o It is a statement and not an account. Although balance sheet is a part of the final accounts and prepared with the help of accounts, yet it is not an account but a statement.
o It is always prepared on a particular date, and thus shows the position at that date and not for a period.
o It has no debit side and credit side. Nor the words ‘To’ and ‘By’ are used before the names of the accounts shown therein. The headings are Liabilities and Assets.
o It shows the financial position of the business concern.
o It shows what the firm owes to others and also what others owe to the firm.
o The totals of Liabilities and Assets always are equal.
• Write A Short Note On Uses Of Balance Sheet?
o It shows the financial position of the business concern.
o It shows what the firm owes to others and also what others owe to the firm.
o It shows the nature and value of the assets.
o It also reflects the liquidity of a firm.
• What Is A Balance Sheet And What Information Does It Convey To An Outsider?
The balance sheet is a statement, which shows the financial position of a business on a particular date. It is a statement of balances of all the accounts real and personal, debit balances of all such accounts represent assets and credit balances represent the liabilities.
1. Principal Objective:
The main purpose of preparing balance sheet is to know the financial position of the business at a particular date.
2. Subsidiary Objectives:
Though the main aim is to know the exact financial position of the firm at a particular date, yet it serves other purpose as well.
o It gives information about the actual and real owner’s equity. Though the capital of the owner indicates owner’s equity, yet some other liabilities are to be accounted for against it also.
o It helps the firm to make provisions against possible future losses. A provision is made in the form of the Reserves.
• What Information Does It Convey To An Outsider?
Balance sheet is prepared with a view to measure the true financial position of a business concern at a particular point in time. It shows the financial position of a business in a systematic form. It is a screenshot of the financial position of the business. At one glance, the position of the business, at a particular point of time, can be understood. The various groups interested in the company can draw useful inferences from an analysis of the information contained in the balance sheet.
• Explain The Meaning Of Owner's Equity?
Owner’s Equity is the residual interest in the assets of the enterprise. Therefore the owner’s equity section of the balance sheet shows the amount the owner have invested in the entity. However, the terminology ‘owner’s equity’ varies with different forms of organization depending upon whether the enterprise is a joint stock company or sole proprietorship/partnership concern.
• Explain The Meaning Of Assets?
"The entire property of all kinds possessed by or owing to a person or organization is called assets. Assets are valuable resources owned by a business and acquired at a measurable money cost".
• Explain The Meaning Of Fixed Assets?
These are those assets, which are acquired for relatively long periods for carrying on the business of the enterprise. Such assets are not meant for resale. For example, Land and Building, Plant and Machinery etc.
• Explain The Meaning Of Accrued Liabilities?
Accrued liabilities represents expenses or obligations incurred in the previous accounting period but the payment for the same will be made in the next period. In many cases where payments are made periodically, such as wages, rent and similar items, the last month’s payment many appear as accrued liabilities (especially if the practice is to pay the same on the first working day of a month). This obligation shown on the balance sheet indicates that the firm owed the said amount on the balance sheet date.
• Explain The Meaning Of Contingent Liability?
These are liabilities which will exist or not, will depend on any future incident. For the sake of shareholders, it is shown in the footnote in the Balance Sheet. The items, which may come under this sub-heading, are:
o Claims against company, which are still not accepted by the company.
o Liability for amount uncalled on partly paid shares.
o Arrears of fixed cumulative dividends.
o Estimated amount of incomplete contracts (capital expenditures), arrangement of which is not made.
• What Do You Mean By Capital Expenditure And Revenue Expenditure?
Capital Expenditure:
All expenditure incurred in acquiring fixed assets, or improving the existing ones by increasing its efficiency (e.g. by providing substitution, alteration or renovation), or effecting economy in operation of existing assets (e.g. by attaching power motor to hand driven machine) are called capital expenditure.
Revenue Expenditure:
They are all such expenses, which are incurred on the organization and for running the business. The benefits of such expenses are limited to the accounting period only. They are incurred to maintain the earning capacity of the business, whereas capital expenditure are incurred to improving the earning capacity of the business.
• Explain Deferred Revenue Expenditure?
Sometimes some expenditure is incurred which by nature is revenue expenditure, but its benefits are likely to be derived over a number of years. If revenue expenditure is incurred during the current year but paid as advance for the coming year(s), such expenditure is called 'Deferred Revenue Expenditure'.
• Explain Capital Receipts And Revenue Receipts?
Capital receipts, like capital expenditures do not affect profit, and are either shown as a liability or more often as a reduction from the assets. Any excess realization over the book value of an asset may, however, be treated as a revenue receipt and accounted for as such. It is, therefore, essential to know the distinction.
Examples of Capital Receipts:
o Capital invested by the owners of the business.
o Amount received from sales of fixed assets or investments.
o Conversion into Cash of any Asset except stock.
o Loans received.
• What Is Capital Loss And Revenue Loss?
o Capital loss is that loss which occurs due to sale of some fixed asset. For examples, loss due to issue of shares or debentures at a discount, loss due to misappropriation of Cash from the office or forfeiture of security deposited for getting an agency.
o Revenue losses are those losses, which occur due to sale and purchase of goods. For example, Bad Debts, loss due to fall in the price of goods etc.
• Explain The Importance Of Preparing Trading Account?
o It provides information about gross profit. The current figure can be compared with earlier ones and reasons found for variations. Accordingly plan can be launched for future growth of the firm.
o Ratio of gross profit to sales can help the trader to improve his business administration.
o Ratio of direct expenses to sales will help the trader to control and rationalize the expenses.
o Comparison of 'stock in hand' of the current year with those of the previous years. Reasons for variation can be found out and steps can be taken to adjust things more profitably.
o Ratio of cost of goods sold to total sale proceeds can help the trader in fixing the prices of his products.
o Precautionary measures can be taken to avoid possible losses by analyzing the items of direct expenses.
• What Is A Profit & Loss Account?
"A Profit and Loss account is an account into which all gains and losses are collected in order to ascertain the excess of gains over the losses or vice versa".
• Differences Between Management Accounting And Financial Accounting?
The differences between management accounting and financial accounting include:
o Management accounting provides information to people within an organization while financial accounting is mainly for those outside it, such as shareholders.
o Financial accounting is required by law while management accounting is not. Specific standards and formats may be required for statutory accounts such as International Financial Reporting Standards.
o Financial accounting covers the entire organization while management accounting may be concerned with particular products or cost centres.
• What Is Demat Account? What Is The Use Of It?
Demat means Dematerialisation of share, in simple it is an account with which a person can trade in security market without which a person cannot buy or sell any share in security market.
• What Are The Basic Requirements Of Preparing Profit & Loss Account?
o Materiality.
o Prior-period items.
o Extra-ordinary items.
o Change in accounting policies.
o Accrual basis of accounting.
• Distinguish Between Straight Line And Written Down Method Of Providing Depreciation?
Difference between Straight Line Method and Written Down Value Method:
1. Amount of Depreciation: The amount of depreciation remains the same all the years under straight-line method, while it goes on decreasing every year under the written down value method.
2. Computation of Depreciation: Under straight line method of depreciation, depreciation is charged on the original cost of the asset, while it is charged on the reducing balance every year under written down value method.
3. Value of Asset: Under the straight line method the value of the asset become nil at the end of its working life but it never becomes nil under the written down value method.
4. Rate of Depreciation: Normally, the rate of depreciation is lower under straight-line method whereas it is higher under the diminishing balance method.
5. Recognition: The straight line method of depreciation is not recognized by the income tax authorities while the later method is well recognized by them.
• Explain The Following Gross Profit?
o Gross Profit is obtained by subtracting the cost of goods sold from Net sales.
o Gross Profit = Net Sales – Cost of Goods Sold.
o Cost of Goods Sold = Opening Stock + Net Purchases + Direct Expenses – Closing Stock.
o And Net Sales = Total Sales – Sales Return.
• Explain The Following Operating Profit?
Operating Profit means profit earned by the concern from its business operation and not from the other sources. While calculating the net profit of the concern all incomes either they are not part of the business operation like Rent from tenants, Interest on Investment etc. are added and all non-operating expenses are deducted.
• Define The Terms 'fund' And 'flow' In The Context Of The Funds Flow Statement. How Is A
Funds Flow Statement Prepared?
Meaning of the term ‘Fund’: -
The term ‘Fund’ has been assigned different meanings by different people. In narrow sense ‘Funds’ means cash and Bank balance. To many people funds is nothing but having the net effect of various business events on the basis of cash. This explains the trend towards the preparation and presentation of "Cash Flow Statement" in published report of accounts.
Funds = Current Assets – Current Liabilities = Working Capital
Meaning of the term ‘Flow’: -
The term ‘Flow’ means change. Therefore flow of funds means change in working capital. The change in funds may be either positive or negative. It may be inflow of funds or outflow of funds.
• Write A Short Note On Cost Accounting?
Cost accounting is concerned with the application of costing principles, methods and techniques for ascertaining the costs with a view to controlling them and assessing the profitability and efficiency of the enterprise. In the initial stages cost accounting was merely considered to be a technique for ascertainment of costs of products or services on the basis of historical data. In course of time it was realized, due to competitive nature of the market, that ascertaining of cost was not so important as controlling costs was.
The objectives of cost accounting are:
• Ascertaining the costs.
• Controlling the costs.
• Reducing the costs.
• Explain The Meaning Of Fixed Cost?
These are the costs which remain constants irrespective of the quantum of output within and up to the capacity that has been built up. Examples of such costs are: rent, insurance charges, management salary etc.
Fixed Cost is divided into :
(i) committed fixed costs and
(ii) discretionary fixed costs.
Committed Fixed Costs: This consists largely of those fixed costs that arise from the possession of plant, equipment and a basic organizational structure. For example, once a building is constructed and plant is installed noting much can be done to reduce the costs such as depreciation, property taxes, insurance and salaries of the key personnel etc.
Discretionary Fixed Costs: These are those costs, which are set at fixed amount for specific time periods by the management in the budgeting process. These costs directly reflect top management policies and have no particular relationship with volume of output. These costs can therefore be reduced or eliminated entirely, if the circumstances so require.
• Explain The Meaning Of Shut Down Costs?
Those costs which continue to be incurred even when a plant is temporarily shut-down, e.g. rent, rates, depreciation, etc. these costs cannot be eliminated with the closure of the plant. In other words, all fixed costs, which cannot be avoided during the temporary closure of a plant, will be known as shut down costs.
• Explain The Meaning Of Sunk Costs?
Historical costs incurred in the past are known as sunk costs. They play no role in decision making in the current period. For example, in the case of a decision relating to the replacement of a machine the written down value of the existing machine is a sunk cost .
• Explain The Meaning Of Opportunity Cost?
This cost refers to the value of sacrifice made or benefit of opportunity foregone in accepting an alternative course of action. For example, a firm financing its expansion plans by withdrawing money from its bank deposits. In such a case the lots of interest on the bank deposit is the opportunity cost for carrying out the expansion plant.
• Explain The Meaning Of Controllable Costs?
These are costs, which can be influenced by the action of a specified member of an organization. For example, the foreman of a production department can control the utilization of power or raw material in his department. These are, therefore, controllable costs as far as he is concerned.
• Explain The Meaning Of Uncontrollable Costs?
These are costs that cannot be influenced by the action of a specified member of an undertaking. For example, the foreman of a production department can control the wastage of power in his department, but he cannot control the power, which is being wasted in the powerhouse itself resulting in higher cost per unit of power to him.
Latest Accounts And Finance For Managers Interview Questions and Answers pdf
No comments:
Post a Comment