Here we have mentioned most frequently asked Accountant Interview Questions and Answers specially for freshers and experienced.
1. Why did you select accounting as your profession?
Well, I was quite good in accounting throughout but in my masters, when I got distinction I decided to adopt this field as a profession.
2. Do you have any professional experience of this field?
Yes, I have worked as an accountant at two different places.
3. Did you use accounting applications at your previous companies or prefer working manually??
Yes, I have used Advanced Business Solutions and AME Accounting Software in my previous jobs.
4. Can you name any other accounting application?
Yes, I am familiar with CGram Software, Financial Force, Microsoft Accounting Professional, Microsoft Dynamics AX and Microsoft Small Business Financials.
5. Which accounting application you prefer most and why?
I think all are good though but Microsoft Accounting Professional is best because it offers reliable and fast processing of accounting transactions that saves time and increases proficiency.
6. What is the abbreviation for the accounting terms debit and credit?
Debit abbreviation is “dr” and credit abbreviation is “cr”.
7. How many types of business transactions are there in accounting?
There are two types of transactions in accounting i.e. revenue and capital.
8. What is balance sheet?
It is a statement that states all the liabilities and assets of the company at certain point.
9. Have you ever heard about TDS, what it is?
Yes, TDS abbreviates Tax Deduction at Source.
10. In balance sheet, where do you show TDS?
It is shown on the assets section, right after the head current asset.
11. Do you have any idea about Service Tax or Excise?
It is a kind of hidden tax that is included in the service provided by the service provider and paid by the service receiver.
12. Do you think there is any difference between inactive and dormant accounts?
Yes, both are different terms in accounting. Inactive accounts means that accounts have been closed and will not be used in future as well. While, dormant accounts are those that are not functional today but may be used in future.
13. What is tally accounting?
It is the software used for accounting in small business and shops for managing routine accounting transactions.
14. How can you define departmental accounting?
It is a type of accounting in which separate account is created for departments. It is managed separately as well as shown independently in the balance sheet.
15. Define fictitious assets?
These are the assets that cannot be shown or touch. Fictitious assets can only be felt such as good will, rights etc.
16. By saying, perpetual or periodic inventory system; what do we mean?
In the first one i.e. the perpetual inventory system, the accounts are adjusted on continual basis. In the periodic inventory system, the accounts are adjusted periodically.
17. In accounting, how do you define premises?
Premises refer to fixed assets that are shown in the balance sheet.
18. In accounting, VAT abbreviates what?
VAT means Value Added Tax.
19. Do you possess any knowledge about accounting standards?
Yes, as per my knowledge there are total 33 accounting standards published so far by ICAI. The purpose of these standards is to implement same policies and practices in any country.
20. What is ICAI?
It is the abbreviation of Institute of Chartered Accountants in India.
21. How can you explain the basic accounting equation?
We know that accounting is all about assets, liabilities and capital. Therefore, the accounting equation is:
Assets = Liabilities + Owners Equity.
22. Define Executive accounting?
It is a type of accounting that is specifically designed for the business that offers services to users.
23. Define Public accounting?
Public accounting offers audits and CPAs to review company financial records to ensure accountability. It is for general public.
24. What is a CPA?
CPA stands for Certified Public Accountant. To become a CPA, one should have to do many other qualifications as well. It is a qualification with 150 hour requirement; it means that one should complete 150 credit hours at any accredited university.
25. What do you think is bank reconciliation statement?
A reconciliation statement is prepared when the passbook balance differs from the cashbook balance.
26. Differentiate Public and Private Accounting?
Public accounting is a type of accounting that is done by one company for another company. Private accounting is done for your own company.
27. What is project implementation?
Project implementation involves six steps in total such as:
Generate and Screen Ideas
Conduct Feasible Study
Develop the Project
Implement the Project
Control the Project
28. Do you think Accounting Standards are mandatory and why?
Yes, I do believe that accounting standards play a very important role to prepare good quality and accurate financial reports. It ensures reliability and relevance in financial reports.
29. Can you name different branches of accounting?
There are three branches of accounting named as “Financial Accounting”, “Management Accounting” and “Cost Accounting”.
30. Differentiate Accounting and Auditing?
Accounting is all about recording daily business activities while auditing is the checking that whether all these events have been noted down correctly or not.
31. Define dual aspect term in accounting?
As the name implies, the dual aspect concept states that every transaction has two sides. For example, when you buy something, you give the cash and get the thing. Similarly, when you sale something, you lose the thing and gets the money. So this getting and losing is basically two aspects of every transaction.
32. What do we mean by purchase return in accounting?
It is the term introduced in the records for every defective or unsatisfactory good returned back to its supplier.
33. Define the term material facts in accounting?
Material facts are the bills or any document that becomes the base of every account book. It means that all those documents, on which account book is prepared, are called material facts.
34. Have you ever prepared MIS reports and what are these?
Yes, I have prepared few MIS reports during my previous jobs. MIS reports are created to identify the efficiency of any department of a company.
35. Define company’s payable cycle?
It is the time required by the company to pay all its account payables.
36. Define retail banking?
It is a type of banking that involves a retail client. These clients are the normal people and not any organizational customers.
37. How much mathematics knowledge is necessary or required in accounting?
Not much knowledge but basic mathematical background is required in accounting for operations like addition, subtraction, multiplication and division.
38. Define bills receivable?
All types of exchange bills, bonds and other securities owned by a merchant that is payable to him are said as bills receivable.
39. Define depreciation and its types?
By depreciation we mean that a value of an asset is decreasing as it is in use. It has two types such as “Straight Line Method” and “Written Down Value Method”.
40. Differentiate between consignor and consignee?
Consigner is the owner of the goods or you can say he is the person who delivers the goods to the consignee. The consignee is the person who receives the goods.
41. Define balancing in accounting?
Balancing means to equate both sides of the T-account i.e. the debit and credit sides of a T-account must be equal/balanced.
42. How much statistics knowledge is necessary or required in accounting?
You must be very good at statistics if you want to do well in accounting. Otherwise, with minimum knowledge you cannot manage your day to day transactions effectively in accounting.
43. Define Scrap value in accounting?
It is the residual value of an asset. The residual value is the value that any asset holds after its estimated life time.
44. Define Marginal Cost?
Suppose you have to produce an additional unit of output. The estimated cost of additional inputs to produce that output is actually the marginal cost.
45. Define Partitioning in accounting?
It is a kind of groups made on the basis of same responses by a system.
46. Differentiate between provision and reserve?
Provisions are the liabilities or the anticipated items such as depreciation. You can say provisions are expenses. Reserves are the profits of any company and a part of that profit is placed back to the business to keep it sustainable in tough times of a company.
47. Define Offset accounting?
Offset accounting is one that decreases the net amount of another account to create a net balance.
48. Define overhead in terms of accounting?
It is the indirect expenditure of a company such as salaries, rent dues etc.
49. Define trade bills?
We know that all types of transactions need to be documented. The trade bills are the documents, generated against each transaction.
50. Define fair value accounting?
As per fair value accounting, a company has to show the value of all of its assets in terms of price on balance sheet on which that asset can be sold.
51. Explain what is compound journal entry?
A compound journal entry is just like other accounting entry where there is more than one debit, more than one credit, or more than one of both debits and credits. It is essentially a combination of several simple journal entries.
52. What are the accounting events that are frequently involved in compound entries?
The accounting events that are frequently involved in compound entries are;
Record multiple line items in a supplier invoice that address to different expenses
Record all bank deductions associated to a bank reconciliation
Record all deduction and payments related to a payroll
Record the account receivable and sales taxes related to a customer invoice
53. Mention the types of accounts involved in double entry book-keeping?
Double entry book-keeping involves five types of accounts,
54. Mention what are the rules for debit and credit for different accounts to increase the amount in your business accounts?
The rules for debit and credit for different accounts,
for a capital account, you credit to increase it and debit to decrease it
for an asset account, you debit to increase it and credit to decrease it
for a liability account, you credit to increase it and debit to decrease it
for an expense account, you debit to increase it, and credit to decrease it
for an income account, you credit to increase it and debit to decrease it
55. List out the Stages of Double Entry System?
Recording of transactions in the journal
Posting of journal entry in to the respective ledger accounts and then preparing a trial balance
Preparing final accounts and closing of books of accounts
56. Mention what is the disadvantage of double entry system?
The disadvantage of double entry system,
If there is any compensatory errors, it is difficult to find out by this system
This system needs more clerical labour
It is difficult to find the errors if the errors are in the transactions recorded in the books
It is not preferable to disclose all the information of a transaction, which is not properly recorded in the journal
57. Mention what is General ledger account?
The General ledger account is an account where the company records all the information for its various expenses and income types into separate accounts. Such that all the debits and credits pertaining to that particular type of transaction can be entered in one place and kept balanced.
58. What is the general classification of accounts that usually ledger account involve?
The general classification of accounts that usually ledger account involves are
Assets- Cash, Accounts Receivable
Liabilities- Accounts Payable, Loans Payable
Stockholders’ equity- Common Stock
Operating revenues- Revenues through Sales
Operating expenses- Rent Expense, Salaries Expense
Non-operating revenues and gains- Investment Income, gain on Disposal of Equipment
Non-operating revenues and losses- Interest Expense, Loss on Disposal of Equipment
59. Mention what are things will not be included in bank reconciliation statement?
In a bank reconciliation statement, following thing can be excluded.
Direct payments made by bank not entered in Cash book
Cheques deposited but not cleared
Cheques dishonoured not recorded in cash book
Wrong debits given by bank
Bank Charges or Interst debited by bank
Banks direct payment not entered in Cash book
60. Under the accrual basis of accounting, when revenues are reported in the accounting period?
When service or goods have been delivered, then revenues are reported in the accounting period.
61. Under what type of account does the unearned revenues fall?
The unearned revenues falls under “Liability” account.
62. Mention whether the account “Cash” will be credited or debited, when a company pays a bill?
The account “Cash” will be credited when a company pays a bill.
63. Mention what is assets minus liabilities?
Assets minus liabilities is equal to owners’ equity or stockholders equity.
64. Entries to revenues accounts such as Service Revenues are usually?
Entries to revenues accounts such as Service Revenues usually goes into credit side.
65. Explain what is the difference between accumulated depreciation and depreciation expense?
The difference between accumulated depreciation and depreciation expense is that
Accumulated depreciation: It is the total amount of depreciation that has been taken on a company’s assets up to the date of the balance sheet
Depreciation expense: It is the amount of depreciation that is reported on the income statement. Basically, it is the amount that corresponds only to the period of time indicated in the heading of the income statement.
66. List out some of the examples for liability accounts?
Some of the examples for liability accounts
Short-term Loans Payable
Unearned or Deferred Revenues
Installment Loans Payable
Current Portion of Long-term Debt
Mortgage Loans Payable
67. Explain how you can adjust entries into account?
To adjust entries into account, you can sort entries into five categories.
Accrued expenses: Expenses have been incurred but the vendors invoices are not generated or processed yet
Accrued revenues: Revenues have been earned but the sales invoices are not generated or processed yet
Deferred revenues: Money was received in advance of having been paid or earned
Deferred expenses: Money was paid for a future expense
Depreciation expense: An asset purchased in one period must be allocated to expense in each of the accounting periods of the asset’s useful life
68. Explain what a deferred asset is and give an example?
A deferred asset refers to a deferred debit or a deferred charge. An example of a deferred charge is bond issue costs. These costs involves all of the fees or charges that an organization incurs in order to register and issue bonds. This fees are paid in a near time when the bonds are issued but it will not be expensed at that time.
69. Mention what is Bank Reconciliation?
A bank reconciliation is a process done by a company to ensure that the company’s records (check register, balance sheet, general ledger account, etc.) are correct and that the bank’s records are also correct.
70. Mention what is “deposit in transit”?
A deposit in transit is a checks and cash that have been received and recorded by an entity, but which have not yet been entered in the records of the bank where the funds are deposited.
71. Explain what is an over accrual?
An over accrual is a condition where the estimate for an accrual journal entry is too high. This estimate may apply to an accrual of expense or revenue.
72. Mention what is account receivable?
A short term amounts due from buyers to a seller, who have purchased goods or services from the seller on credit is referred as account receivable.
73. Explain what are the activities that includes in Cash Flow Statement?
The cash flow statement showcase the cash generated and used during the year or months. Various activities that are involved for the Cash Flow are
Operating activities – business activities accounting to cash
Investing activities – sale and purchase of equipment or property
Financial activities- purchase of stock and own bonds
Supplemental information- exchange of significant items that don’t involve cash
74. Mention what happens to company’s “Cash Account” if it borrows money from the bank by signing a note payable?
Due to double entry, the “cash account” will increase as such the liability account increases.
75. Mention which account is responsible for interest payable?
Account which is responsible or affected by the interest payable is “Current liability account”
76. Mention what is reversing journal entries?
Reversing journal entries are entries made at the beginning of an accounting period to cancel out the adjusting journal entries made at the end of the previous accounting period.
77. Mention where do generally accruals appear on the balance sheet?
Accrued expenses usually tend to be extremely short-term. So you would record them within the “current liabilities section” of the balance sheet.
78. List out some of the accrued expenses and the accounts in which you would record them?
Wage accrual is entered with a credit to the “wages payable account”
Interest accrual is entered with a credit to the “interest payable account”
Payroll tax accrual is entered with a credit to the “payroll taxes payable account”
79. Deferred taxation is a part of which equity?
Deferred taxation is a part of owner’s equity.
80. Mention what does the investment of personal assets by the owner will do?
The investment of personal assets by the owner will increase total assets and increase owner’s equity.
81. What is the equation for Acid-Test Ratio in accounting?
The equation for Acid-Test Ratio in accounting
Acid-Test Ratio = (Current assets – Inventory) / Current Liabilities
82. List out things that fall under intangible asset?
Things that fall under intangible asset are,
Domain names, and so on.
83. Mention what is trial balance in accounting?
In accounting, trial balance is an accounting report that lists the balances in each of an organization’s general ledger accounts. This is done at the end of posting journal entry to ensure that there are no posting errors.
84. Where a cash discount should be recorded in journal entry?
A cash discount should be recorded in journal entry as a reduction of expense in “cash account”.
85. Mention why some asset accounts have a credit balance?
Some asset accounts have a credit balance due to following reasons,
Receiving and posting an amount that was higher than the recorded receivable
Expenses occurred faster than the agreed upon prepayments
An error caused by posting an amount to a wrong account
The amount of checks written exceeded the positive amount in the Cash account
Continuing to amortize or depreciate an asset after its balance has reached zero
86. Define what is Bad debt expense?
A Bad debt expense is the amount of an account receivable that is considered to NOT be collectible.
87. Explain what is the Master Account?
A Master Account has subsidiary accounts. A master account receivable could be anything, it could be account receivable for various individual receivable accounts.
88. Mention in which account does the unpresented cheque will get recorded?
The unpresented cheque will get recorded as a credit to the cash account in the company’s General ledger.
89. What knowledge should financial accountant have?
A certified financial accountant should have knowledge about
Accounting principles and practices
Reporting and analysis of financial data
Auditing practices and principles
Software knowledge dealing with Accounting
Knowledge of relevant laws, codes and regulations
90. What are the three factors that can affect your cash flow and business profitability?
The three factors that can affect your cash flow and business profit includes
Cash flows from investing activities: It includes shares, bonds, physical property, machineries, etc.
Cash flows from operating activities: It does not include cash received from other sources like investments
Cash flow from financing activities: It includes any activities that involves dividend payments that the company made to its shareholders, any money that includes stock to the public, any money borrowed from the lender etc. in other words, it is a report that tells the firm about the money borrowed and paid out in order to finance its activities.
91. Explain what is accrual accounting?
Accrual Accounting is a method for measuring the performance and position of the company by identifying economic events regardless of when cash transaction happened. In this method, revenue is compared with the expenditures, at the time in which the transaction happens rather than when the payment is made.
92. Explain the term account payable?
Account payable is referred as the amount company owes to its suppliers, its employees, and its partners. In other words, it is the basic cost levied on the company to run business process that is outstanding. Account payable for one company may be account receivable for another firm or company.
93. Explain the meaning of long-term notes payable is or long term liabilities?
Long-term notes payable or liabilities are referred for that loan that are not supposed to due for more than a year. These are the loans from banks or financial institution that are secured against various assets on the balance sheet, such as inventories.
94. Mention what is the difference between depreciation and amortization?
Capital expenses are either depreciated or amortized based upon the type of asset.
95. Mention what does financial statement of the company includes?
Financial statement of the company includes various information like
Balance Sheet ( Assets, liabilities, and equity)
Income statement ( Profit or Loss statement)
Cash flow statement
96. Explain what is working capital?
Working capital is a financial metric that calculates the resources available to the company to finance its day-to-day operations. It is typically calculated by deducting current liabilities from current assets.
97. Explain what is ledger?
A ledger can be referred as an accounting book that keeps the record of journal entries in a chronological order to individual accounts. The process of recording this journal entries is known as posting.
98. Mention the types of ledger?
There are three types of ledger
99. Explain what is GAAP?
GAAP means Generally Accepted Accounting Principle; it is a framework of accounting, standards, procedures & rules determined by the professional accounting industry and practiced by publicly traded U.S companies all over the U.S.A.
100. Explain what is double-entry accounting? Explain with an example?
Double entry accounting is an accounting system that requires recording business transaction or event in at least two accounts. It is the same concept of accounting, where every debit account should be matched with a credit account.
For example, if a company takes a loan from a bank, it receives cash as an asset but at the same time it creates a liability on a company. This single entry will affect both accounts, the asset accounts, and the liabilities accounts, such entry is referred as double entry accounting.
101. Explain what does the standard journal entry includes?
A standard journal entry includes, date of business transaction, name of the accounts affected, amounts to be debited or credited and a brief description of the event.
102. Explain what is liabilities and what all does include in current liabilities?
Liability can be defined as an obligation towards another company or party. It may consist of delivering goods, rendering services or paying money. They are the opposite of assets, and it may include
Interest and dividend payable
Reserves for federal taxes
Short term loans
103. Mention in simple terms what is the difference between Asset, equity, and liabilities?
Asset: What financial institute (bank) or people owe you
Liabilities: It is something you owe people or organization
Equity: It is something you own, for example, the amount of your house loan you paid off
104. What is the difference between mercantile system and cash system of accounting?
In mercantile system, expenses are considered as expenses during the period to which they pertain. Similarly, incomes are considered to be incomes during the period to which they pertain. This system of accounting is considered to be more ideal. On the hand, in cash system, expenses are considered to be expenses only when they are paid for and the incomes are considered to be income when they are actually received. This system of accounting is mainly used by the organizations established not for earning the profits.
105. What are the accounting concepts?
Accounting concepts are the basic assumptions on which the process of accounting is based.
Following are the accounting concepts
o Business Entity Concept
o Dual Aspect Concept
o Going Concern Concept
o Accounting Period Concept
o Cost Concept
o Money Measurement Concept
o Matching Concept
106. What is owner’s equity? How will you calculate it?
Owner’s equity, also known as capital of the business is the claim of the owner of the business against the assets of the business. Owner’s equity is calculated by subtracting equity of creditors from the total equity.
107. What is double entry Bookkeeping? What are its rules?
Double entry bookkeeping follows the principle according to which every debit has a corresponding credit; hence total of all debits is always equal to the total of all credits. In this system, one account is debited and at the same time another account is credited by the similar amount.
Following are the rules for different account
For Personal Accounts : Debit the receiver, Credit the giver.
For Real Account : Debit what comes in, Credit what goes out.
For Nominal Account : Debit all the expenses, Credit all the incomes.
108. What is bank reconciliation statement? What are the steps to prepare it?
Bank reconciliation statement is a statement prepared at periodical intervals, with a view to indicated the items which cause disagreement between the balances as per the bank columns of the cash book and the bank pass book on any given date.
Follow the below steps to prepare a bank reconciliation statement
o Take the balance either as per cash book or as per pass book as a starting point.
o Compare the items appearing in the bank column of the cash book with the item appearing in the bank pass book.
o Tick off the items in the pass book with the entries in the cash book. A list of unticked items either in cash book or pass book will be found.
o Add or deduct items from the balance which has been taken as a starting point.
o The resultant figure will be the balance as shown by the pass book or vice versa.
109. What are the reasons for the difference in the balances as shown by the cash book and the pass book?
o Cheques deposited into the bank but not yet collected and credited.
o Cheques issued but not yet presented for payment.
o Bank Charges.
o Amount collected or credited by bank on standing instructions.
o Amount paid or debited by the bank on standing instructions.
o Interest credited by bank.
o Interest debited by bank on overdraft.
o Direct payment by customers into the bank account.
o Dishonour of cheques or bills.
o Errors in recording of transactions by either the firm or the bank.
110. What is the adjustment entries made while preparing the final accounts from the Trial Balance?
o Closing Stock
o Outstanding Expenses
o Prepaid Expenses
o Accrued Income
o Income received in advance
o Bad Debits
o Provision for Doubtful Debts
o Provision for Discount on Debtors
o Interest on Capital
o Deferred Revenue Expenditure Written off
o Abnormal Loss due to fire etc.
o Goods distributed as free samples
o Goods sent on approval basis
o Commission payable to the manager
111. What is debit note and credit note? What is the difference between them?
Debit note is an intimation sent to a person dealing with the business that his account is being debited for the purpose indicated therein. It is a note made out with a carbon duplicate. The original one is sent to the party to whom the goods are returned and the duplicate copy is kept for office record.
Credit note is an intimation sent to a person dealing with the business that his account is being credited for the purpose indicated therein.
112. What is the difference between Cash discount and Trade discount?
o Cash discount is an allowance made by retailers to the customers for prompt payment. On the other hand, trade discount is an allowance made by the wholesaler dealer to retailers off the catalogue or invoice price. This allowance is made between purchasers and sellers engaged in the same class of trade.
o Cash discount is always allowed or received when payment is made. Trade discount enables the retailers to sell the products to customers at catalogue or price list issued by the wholesaler.
o Cash discount is an allowance in addition to the trade discount made by the seller to the buyer.
o Cash discount is recorded in account books while trade discount is not shown separately.
o The main purpose of allowing trade discount is to enable the retailers to sell the goods at list price while the purpose of providing cash discount is prompt payment by the debtor to the creditor.
113. What items are included in Profit and Loss account?
o Rates and Taxes
o Trade Expenses
o Printing and Stationery
o Carriage out, freight out, carriage out
o Travelling expenses
o Apprentice premium
o Life insurance premium
o Insurance premium
o Income tax
o Interest on capital and drawings
o Loss or gain on asset sold
o Discount received and allowed
o Trade discount
114. What is the difference between a trial balance and a balance sheet?
o Trial balance is a list of balances from the ledger account while balance sheet is a statement of assets and liabilities.
o Trial balance contains balances of all personal, real and nominal accounts, while balance sheet contains balances of only those personal and real accounts which represent assets and liabilities.
o Trial balance is prepared before preparation of trading and profit and loss account, while balance sheet is prepared after the preparation of trading and profit and loss account.
o Trial balance is prepared to check the arithmetical accuracy of posting into ledger while balance sheet is prepared to indicate the financial position of the business on a particular date.
o Debt and credit balances are shown side by side while balance sheet is prepared on a T form basis, the left hand side showing liabilities while right hand side representing assets.
o Closing stock does not appear in the trial balance while it is shown on the assets side of balance sheet.
115. What is Contingent Liabilities?
Contingent liability is an obligation, relating to a past transaction or other event or condition, that may arise in consequence, as a future event now deemed possible but not probable. Thus such liabilities as may arise in future are called contingent liabilities. For example: guarantee to a bank for loan advanced to a third party, possible penalties, fines and penalties payable to the government or income tax authorities etc. Future losses from natural calamities are not contingent liabilities. They are not recorded in books of account. They do not appear on the liabilities side of the balance sheet. They are shown by way of a footnote at the bottom of the balance sheet.
116. Explain convention of materiality?
This convention proposes that while accounting for the various transactions, only those transactions will be considered which have material impact on profitability or financial status of the organization and other insignificant transactions will be ignore. In keeping with the principle of materiality, unimportant items are either let out or merged with other items. Sometimes, such items are shown as footnotes or in parentheses according to their relative importance.
117. What are the important terms used in balance sheet?
o Current assets and fixed assets
o Tangible assets and Intangible assets
Equity is a claim which can be enforced against the assets of the firm in the court. Thus equity refers to a claim held by
o An owner only,
o A creditor only,
o An owner and the creditor both.
o Current Liability
o Long term Liability or fixed Liabilities
o Contingent Liabilities
118. What is Deferred Revenue Expenditure? Give some examples.
Deferred Revenue Expenditure is a type of expenditure which does not result into the acquisition of any fixed asset and the benefits from such expenditure is not received during the period which they are paid for.
For example – Initial Advertisement Expenditure, Research and development Expenditure, Preliminary Expenses.
119. Define Trial Balance. What are the main characteristics and uses of a trial balance?
Trial balance is a list of all balances standing on the ledger accounts of a firm at any given time.
Following are the main characteristics of a trial balance.
o It is a statement prepared in a tabular form.
o It has two columns: one for debit balances and another for credit balances.
o Closing balances as shown by ledger accounts are shown in the statement.
o It is not an account but only a statement of balances.
o It is prepared on the basis of balanced accounts.
o It is a method of verifying the arithmetical accuracy of entries made in the ledger.
o It helps in preparation of Trading account, Profit & Loss account and Balance Sheet at the end of the period which exhibit the financial position of the firm.
120. What are the common errors in accounting? What steps will you follow to locate errors?
Following are the common errors in accounting:
o Errors of Omission
o Errors of Commission
o Errors of Principle
o Compensating Error
To locate the errors in the trial balance follow the below steps:
o Check the total of all the subsidiary books, cash book and trial balance.
o Ensure that all the opening balances have been correctly brought forward in the current year’s books of account.
o Ensure that all the ledger accounts have been properly balanced and the balances of all the ledger accounts have been reflected in the Trial Balance.
o The difference in trial balance should be halved to locate such errors.
o If the difference in the trial balance is divisible by 9 without any reminder, it may indicate the transposition or transplacement of the amounts.
o The trial balance of the current year can be compared with the trial balance of the previous year to locate certain highlighting error.