Top 10 finance and accounting interview questions

• The income statement shows revenue, expenses and profit over a period.
• The balance sheet shows assets, liabilities and equity at a point in time (Assets = Liabilities + Equity).
• The cash flow statement shows cash movement over a period from operating, investing and financing activities.

Links: net income from the income statement is the starting point of the cash flow statement (indirect method) and flows into retained earnings on the balance sheet. Non-cash items like depreciation are added back in cash flow and reduce fixed assets on the balance sheet. Changes in working capital items on the balance sheet (receivables, inventory, payables) adjust operating cash flow. The ending cash on the cash flow statement equals cash on the balance sheet.

• Cash accounting records revenue when cash is received and expenses when cash is paid. Simple; used by some small businesses and individuals.
• Accrual accounting records revenue when earned and expenses when incurred, regardless of cash timing. It follows the matching principle and gives a truer picture of performance; companies are required to use it.

Example: you deliver a ₹1 lakh project in March but get paid in April. Under accrual, March revenue includes ₹1 lakh (with a receivable); under cash, it appears in April.

1. Goods purchased on credit from Mehta & Co for ₹60,000 (ignore GST): Purchases A/c Dr 60,000 / To Mehta & Co A/c 60,000.

2. Paid Mehta & Co ₹59,000 in full settlement: Mehta & Co A/c Dr 60,000 / To Bank A/c 59,000 / To Discount Received A/c 1,000.

3. Outstanding salary of ₹25,000 at year end: Salary A/c Dr 25,000 / To Outstanding Salary A/c 25,000.

4. Rent of ₹36,000 paid in advance for next year: Prepaid Rent A/c Dr 36,000 / To Bank A/c 36,000.

5. Depreciation of ₹12,000 on furniture: Depreciation A/c Dr 12,000 / To Furniture A/c (or Accumulated Depreciation) 12,000.

Explain your logic using the golden rules or debit/credit rules for each account type. Interviewers care about the reasoning.

Depreciation allocates the cost of a tangible fixed asset over its useful life, matching the expense with the revenue it helps generate. It's a non-cash expense.

• Straight-line method (SLM): equal amount each year = (cost − residual value) ÷ useful life. A ₹1,00,000 machine with ₹10,000 residual value over 5 years: ₹18,000 a year.
• Written-down value (WDV): a fixed percentage of the reducing book value each year, giving higher depreciation early. At 20%: year 1 ₹20,000, year 2 ₹16,000 (20% of ₹80,000), and so on.

Companies Act schedules give useful lives for book depreciation; the Income Tax Act prescribes WDV rates for tax purposes, so book and tax depreciation can differ (creating deferred tax). Intangible assets are amortised.

Working capital = current assets − current liabilities. It measures short-term liquidity and the cash tied up in daily operations.

The cash conversion cycle (DIO + DSO − DPO) shows how many days cash is locked up. To improve:

• Receivables: invoice promptly and accurately, enforce credit terms, follow up on ageing, offer early-payment discounts, use digital payment options.
• Inventory: better forecasting, reducing slow-moving stock, just-in-time ordering.
• Payables: negotiate longer terms while paying on time to keep good supplier relationships.

Too much working capital means idle cash; too little risks failing to pay obligations.

GST is an indirect, destination-based tax on supplies of goods and services.

• Intra-state supply (seller and place of supply in the same state): CGST (to the Centre) + SGST (to the state), split equally. Example: ₹10,000 at 18% → CGST ₹900 + SGST ₹900.
• Inter-state supply: IGST ₹1,800, collected by the Centre and apportioned.
• Input tax credit: GST paid on eligible business purchases offsets GST payable on sales, avoiding a cascading tax-on-tax. Conditions include a valid invoice, receipt of goods or services, the supplier having filed and the credit appearing in GSTR-2B, and payment to the supplier within the specified period.

Key returns: GSTR-1 (outward supplies) and GSTR-3B (summary and payment). Mention that rates and rules are updated by GST Council decisions, and that you would check current notifications.

Tax deducted at source means the payer deducts a percentage of tax while making specified payments and deposits it with the government on the payee's behalf. It ensures tax is collected at the time income arises.

Examples: salaries (based on the employee's estimated tax), payments to contractors, professional or technical fees, rent above thresholds, commission, and interest other than on securities. The deductor must have a TAN, deposit TDS by the due dates, file quarterly returns (24Q for salary, 26Q for others) and issue certificates (Form 16/16A). The deductee sees the credit in Form 26AS/AIS and claims it in their income tax return. Rates and thresholds depend on the section and change with Finance Acts.

Group them and explain what each tells you:

• Liquidity: current ratio, quick ratio. Can it pay short-term obligations?
• Profitability: gross, EBITDA and net margins; ROE; ROCE. How efficiently does it make money?
• Leverage/solvency: debt-to-equity, interest coverage. How risky is its financing?
• Efficiency: inventory turnover, receivable days, asset turnover. How well does it use its resources?
• Valuation (for listed companies): P/E, EV/EBITDA, P/B.

Always compare against the company's history, competitors and industry norms, and read the trend, not one year. Mention that cash flow from operations versus net profit is a good quality-of-earnings check.

NPV = the present value of future cash flows − the initial investment, discounted at the required rate of return. A positive NPV means the investment creates value.

Valuing a company:

1. DCF: forecast free cash flows (operating cash flow − capital expenditure), estimate a terminal value (perpetuity growth or exit multiple), discount at WACC to get enterprise value; subtract net debt for equity value; divide by shares for value per share.
2. Comparable companies: apply peer multiples (EV/EBITDA, P/E) to the company's metrics.
3. Precedent transactions: multiples paid in similar acquisitions.

Results are presented as a range, and the key assumptions (growth, margins, discount rate) are stress-tested with sensitivity tables.

Answer with specifics and offer to demonstrate:

• Lookups: XLOOKUP/INDEX-MATCH to map ledgers and vendor data.
• Conditional aggregation: SUMIFS, COUNTIFS, AVERAGEIFS for expense analysis and ageing.
• Logic and dates: IF/IFS, EOMONTH, EDATE, NETWORKDAYS for due dates.
• Financial: NPV/XNPV, IRR/XIRR, PMT for loan EMIs, FV/PV.
• Analysis: pivot tables for ledgers and MIS reports, charts, conditional formatting, data validation, removing duplicates, text functions to clean bank data.
• Modelling practices: separate inputs and calculations, consistent formulas, error checks, no hard-coding.

"For example, I built a receivables ageing report using SUMIFS by ageing bucket with conditional formatting to flag invoices over 90 days, and a pivot chart for the monthly review."