Accounting Interview Questions and Answers
Experienced / Expert level questions & answers
Ques 1. Define depreciation and its methods.
Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. Methods include straight-line, declining balance, and units of production.
Example:
If a machine costs $10,000 and has a useful life of 5 years, the annual straight-line depreciation is $2,000.
Ques 2. Explain the concept of goodwill in accounting.
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination.
Example:
If a company is acquired for $1 million, and the fair value of its assets is $800,000, the goodwill is $200,000.
Ques 3. Define the term 'EBITDA.'
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, representing a company's operating performance without certain non-operating expenses.
Example:
If a company has revenue of $500,000, expenses of $300,000, and depreciation of $50,000, the EBITDA is $250,000.
Ques 4. Define the term 'amortization' in accounting.
Amortization is the process of allocating the cost of intangible assets over their useful life, similar to depreciation for tangible assets.
Example:
If a company acquires a patent for $50,000 with a useful life of 10 years, the annual amortization expense is $5,000.
Ques 5. Explain the concept of 'materiality' in accounting.
Materiality refers to the significance or importance of financial information, guiding accountants in determining what information to disclose or omit.
Example:
A small accounting error may be considered immaterial, while a large error impacting financial statements is material.
Ques 6. Explain the concept of 'consistency' in accounting.
Consistency requires a company to use the same accounting principles and methods from one period to the next, ensuring comparability of financial statements.
Example:
If a company changes its depreciation method, it should disclose the change and its impact on financial statements.
Ques 7. What is the significance of the quick ratio?
The quick ratio measures a company's ability to meet short-term obligations using its most liquid assets (excluding inventory) and is calculated by dividing quick assets by current liabilities.
Example:
If a company has quick assets of $200,000 and current liabilities of $100,000, the quick ratio is 2.
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