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Are you a finance and accounting fresher looking to begin your career? Congratulations! Landing an interview is the first step towards attaining your professional goals. In this comprehensive guide, we will provide you with the knowledge and confidence you must excel in your finance and accounting job interviews.
Basic Finance and Accounting Concepts
Before hunting into the interview questions and answers, let’s evaluate some fundamental finance and accounting concepts that are important for freshers entering this field. Knowing these basics will not only impress your interviewers but also serve as a strong basis for your career.
1. Assets and Liabilities
Assets: Assets are anything of value that a company owns. They can be tangible, such as cash, inventory, or equipment, or intangible, like patents, trademarks, and goodwill. Assets are divided into two main categories:
- Current Assets: These are assets that are expected to be converted into cash or used up within one year. Examples include cash, accounts receivable, and inventory.
- Non-current Assets (Fixed Assets): These are long-term assets expected to provide value for more than a year. Examples include land, buildings, and machinery.
Liabilities: Liabilities is a company’s financial obligations. They can be current, such as short-term loans or accounts payable, or non-current, like long-term debt. Knowing the kinds of liabilities is important:
- Current Liabilities: These are obligations due within one year, such as short-term loans and unpaid bills.
- Non-current Liabilities: These are long-term obligations like bonds or mortgages.
2. Income and Expenses
- Income: Income, also known as revenue, is the money a company earns from its operations. It is a key indicator of a company’s success in making revenue streams. Income can come from different sources, including sales, interest, dividends, or royalties.
- Expenses: Expenses represent the costs earned in running the business. These can include wages, rent, utilities, materials, and other expenditures that is important to maintain and expand operations. Proper management of expenses is necessary to maximize profitability.
3. Profit and Loss
- Profit: Profit is the financial gain a company makes when its income is more than its expenses. It’s the positive outcome of a company’s operations and is a key indicator of financial health. A company with consistent profits is generally considered stable and successful.
- Loss: A loss happens when a company’s expenses exceeds its income. It shows that the company is not making enough income to cover its costs. While losses are not uncommon in business, they should be managed and minimized to ensure long-term sustainability.
4. Cash Flow
Cash flow refers to the movement of money in and out of a company. It’s an important aspect of financial management because it reflects a company’s liquidity, or its ability to pay its bills and debts as they come due.
Budgeting is the process of planning and managing a company’s financial resources. A budget serves as a financial roadmap, guiding a company’s spending and income expectations.
Financial statements are a important aspect of finance and accounting. These documents provide a snapshot of a company’s financial performance and position. There are three primary types of financial statements:
1. Income Statement (Profit and Loss Statement)
Purpose: It exhibits a company’s revenues, costs, and profits over a specific period.
Key Elements: Revenue, expenses, and net income.
2. Balance Sheet
Purpose: It outlines a company’s assets, liabilities, and shareholders’ equity at a specific date.
Key Elements: Assets, liabilities, and shareholders’ equity.
3. Cash Flow Statement
Purpose: It reveals the company’s cash inflow and outflow over a particular period.
Key Elements: Operating, investing, and financing activities.
Financial Statements Preparation
Preparing financial statements needs a deep understanding of accounting principles and practices. Here are some important points to keep in mind while preparing these statements:
1. Accrual Accounting vs. Cash Accounting
- Accrual Accounting means recognizing transactions when they occur, not when cash is paid or recieved.
- Cash Accounting means recording transactions only when money is received or paid.
- One fundamental principle in financial statement preparation is consistency. A company should use the same accounting methods and principles from one period to the next. This assures that financial statements are comparable, and users can evaluate a company’s performance and position over time. Changes in accounting methods should be revealed and explained in the financial statements.
- When preparing financial statements, it’s essential to include relevant information that helps users in making informed decisions. Irrelevant or immaterial details can confuse financial statements and make it challenging for stakeholders to know a company’s financial performance. The aim is to present information that is meaningful and important to the users.
- Comparability is another important principle in financial statement preparation. Financial statements should be prepared in a way that lets easy comparison with other periods or with the financial statements of other companies. This facilitates benchmarking and trend analysis. Investors and creditors often rely on the ability to compare financial statements to evaluate a company’s financial health and growth prospects.
- Financial statements should include clear and comprehensive disclosure of significant accounting policies and estimates. This information assists users to understand how the financial statements were prepared and the judgments made by management. Main disclosures might include details about revenue recognition, depreciation methods, and the treatment of contingencies or uncertainties.
The accounting cycle is a step-by-step process that companies use to record and prepare financial statements. It involves the following stages:
1. Identifying Transactions
- The accounting cycle starts with the identification of financial transactions. These transactions can include sales, purchases, payments, receipts, and any other monetary activity within the organization. It is necessary to record all relevant transactions correctly. This step often includes using source documents like invoices, receipts, purchase orders, and bank statements.
- Once transactions are identified, they are recorded in a journal, which is usually known as the general journal. The journal gives a chronological record of all transactions and includes important details such as the date of the transaction, the accounts affected, a description of the transaction, and the amount involved.
- After transactions are recorded in the journal, they must be moved to the general ledger. The general ledger is a comprehensive record of all accounts used by the company. Each account, whether it’s an asset, liability, equity, revenue, or expense, has its own ledger page.
4. Trial Balance
- A trial balance is made after all transactions have been recorded to the general ledger. It’s an important internal control tool used to assure that debits equal credits in the accounting system. If the trial balance doesn’t balance, it shows an error in the accounting records that must be corrected before moving forward.
5. Adjusting Entries
- Adjusting entries are made to improve the accounting records and review accrual accounting principles. These entries are important to be aware of revenue and expenses when they are earned or incurred, despite of when cash is exchanged.
6. Financial Statements
- After the adjusting entries have been made and the accounts are up-to-date, the next step is to prepare the financial statements.
Closing entries are important in the accounting cycle to reset temporary accounts and prepare them for the next accounting period. It is the final step in the accounting cycle. They are essential to reset the temporary accounts, such as revenue and expense accounts, to zero balances. The purpose of this is to prepare these accounts for the next accounting period. These entries include:
1. Closing Revenue Accounts
Transferring the balance of revenue accounts to the income summary account.
2. Closing Expense Accounts
Transferring the balance of expense accounts to the income summary account.
3. Transferring to Capital Accounts
Moving the income summary balance to the owner’s capital account.
Auditing is the process of reviewing and assessing a company’s financial records to ensure accuracy and compliance with accounting standards. It is usually done by an external auditor. Key points about auditing are the following:
1. Internal vs. External Audits
Internal Audit: Conducted by employees within the organization.
External Audit: Done by independent auditors.
2. Auditor Independence
Auditors should be impartial and unbiased to assure the integrity of the audit process.
3. Auditor Reports
Auditors publish a report telling their findings, typically with opinions like “unqualified,” “qualified,” or “adverse.”
How Will Entri Help You?
Now that you have got a fundamental understanding of finance and accounting concepts and the accounting cycle, let’s discuss how Entri app can help you prepare for your finance and accounting job interview. Entri provides a wide range of resources, including:
1. Interview Coaching
Entri offers an expert interview coaching to assist you refine your interview skills, answer tough questions, and increase your confidence.
2. Practice Interviews
Get hands-on experience with mock interviews, complete with feedback to help you improve.
3. Interview Question Libraries
Access a comprehensive collection of finance and accounting interview questions to practice with.
4. Courses for Improving Accounting Skills
Along with interview preparation, Entri also offers courses to enhance accounting skills
In-Demand Accounting Courses
In the competitive world of finance and accounting, a successful job interview can set the stage for a fulfilling career. We hope this guide has provided you with valuable insights into the key concepts and interview tips to help you make a lasting impression on your potential employers. Remember, preparation and confidence are your keys to success.