Frequently Asked Accounting Questions and Answers

Accounting Question

There are many accounting questions you may have for your small business here we have tried to answer as many as possible. Our topics include everything your business may need to get up and running right through to producing the financial statements and completing your year-end returns.

We have split the questions into five sections:

Basic Accounting Questions

What is accounting?

Accounting is the process of recording, classifying and summarising financial transactions to provide helpful information in making business decisions. Accounting also includes information about a company’s financial position, performance and cash flow statement.

What are the Financial Statements?

The financial statements are the three primary reports that summarise a company’s financial position, results of operations and cash flows. The accounting statements are the balance sheet, profit and loss (income statement), and cash flow statement.

What is the Easiest Way to Produce the Financial Statements?

Using accounting software is by far the easiest way to process your transactions and prepare financial statements. The software will automate many tasks for you, such as recording transactions, producing reports, and calculating totals. This leaves you more time to focus on running your business.

 

What is the Balance Sheet?

The accounting balance sheet is an accounting report which summarises a company’s assets (what the business owns), liabilities (the debts of the business) and equity (the value of shareholders’ ownership in the company). Assets include things like buildings or equipment used by the business to generate revenue or provide services. Liabilities can be loans from banks or other creditors and unpaid bills from customers for goods or services received but not yet paid for. Equity includes shares of stock owned by investors in addition to any retained earnings on hand.

What is the Profit and Loss (Income Statement)

Income statement example
Income Statement Example

The accounting profit and loss statement is an accounting report that summarises a company’s revenues (income) and expenses for a specific period, usually for one month, one quarter, or one year. The accounting profit and loss statement is also called the income statement or P&L.

What is the Cash Flow Statement?

The accounting cash flow statement is an accounting report which summarises a company’s inflows and outflows of cash for a specific period, usually for one month, one quarter or one year. The accounting cash flow statement shows where the company’s cash will come from (inflows) and where it will go (outflows).

A cash flow statement is a useful financial statement to see how much cash a business will have at any time. It lets the company know when they have money to invest or not enough and might need an overdraft.

What are Fixed Assets? 

Fixed assets are long-term assets that a company uses to generate revenue or provide services. These assets usually have a life of more than one year and include things like land, buildings, equipment, vehicles and patents. The depreciation of a fixed asset is the process of allocating its cost over its useful life.

What are Current Assets?

Current assets are short-term assets of a business that are expected to be converted into cash within one year. The most common types of current assets are cash and cash equivalents, accounts receivable, inventories and prepaid expenses.

What is a Liability?

Liabilities are a company’s debts or obligations. The most common types of liabilities are loans from banks or other creditors unpaid bills from suppliers for goods or services received but not yet paid for.

What is an Accounting Journal?

An accounting journal is used to adjust the income statement or balance sheet figures. An accounting journal can be used for a number of reasons, such as recording the depreciation of an asset over its lifespan, recording a one-time accounting event, or correcting accounting errors.

What is an Accounting Ledger?

An accounting ledger is a book where all the business transactions are recorded. The accounting ledger is also called the general ledger.

What is an Accounting Period?

An accounting period is a time frame used to prepare its financial statements. The most common accounting periods are monthly, quarterly and annually.

How do I Calculate Depreciation?

Depreciation is the accounting process of allocating the cost of a fixed asset over its useful life. The depreciation expense is recognised each period in the profit and loss statement. There are several different methods to calculate depreciation, including the straight line and reducing balance method.

Reducing balance vs straight line depreciation
Straight Line and Reducing Balance Depreciation

How do I Account for Inventory or Stock?

Inventory is a current asset representing the goods and materials that a business has on hand to sell to customers. The accounting for inventory is done at cost, which is the original purchase price of the inventory plus any costs to get the inventory ready for sale (e.g. shipping, handling, taxes).

What is the Basic Accounting Equation?

The basic accounting equation is the fundamental accounting equation that states that the total assets of a company must equal the total liabilities plus the company’s equity.

Basic Accounting Equation

What is Credit Control?  

Credit Control is the process of collecting accounts receivable payments. Procedures might include sending out supplier statements, telephone calls, reminder letters and final demands.

What is Double Entry Bookkeeping? 

In accounting, the double entry system refers to the recording of transactions with debits (left) and credits (right) that have been used for centuries to measure financial performance. For each transaction, an equal and opposite transaction is made.

Double entry Bookkeeping

What is a Purchase Invoice? 

A purchase invoice is a document that a company receives from its suppliers; it lists the products and services provided to the company. The purchase invoice also includes the price and any discounts offered. The company uses the purchase invoice to calculate how much money it owes to the supplier.

How to Create a Sales Invoice? 

A sales invoice is a document issued to customers that lists the products and services that have been provided. The sales invoice also includes the price of the products and services and any discounts that the company may have offered. The customer uses the sales invoice to calculate how much money they owe to the company.

There are many different ways to create a sales invoice. One way is to use accounting software, such as QuickBooks or Xero. Another way is to use an excel sales invoice template.

What is a Trial Balance? 

The trial balance is a list of all the accounts in a company’s accounting system, with each account’s debit balances and credit balances listed separately. Bookkeepers and accountants use the trial balance to check that the total of the debit balances is equal to the total of the credit balances. It ensures that the accounting records are accurate.

Accountants and bookkeepers use a trial balance to see a complete picture of the accounts.

How do you Complete Stock Control?

Stock control is the process of accounting for and managing the inventory of a business. The accounting for inventory is done at cost, which is the original purchase price of the inventory.

There are two main ways to complete stock control: accounting software or a manual system. Accounting software is the most common way to complete stock control. Accounting software such as QuickBooks or Xero can automate much of the stock control process, including creating purchase orders, receiving goods, and issuing sales invoices.

What is the Difference Between Gross and Net Income?  

The main difference between gross and net income is that gross income includes all of the income a company has earned less cost of sales, while net income includes only the income left after all of the company’s expenses have been paid. It means that gross income is always higher than net income.

What is the Difference between Accrual Accounting and Cash Accounting?

There are two main types of accounting: accrual accounting and cash accounting. The main difference between the two is when income and expenses are recorded. Accrual accounting records income and expenses when they are earned or incurred, regardless of when the cash is received or paid. Cash accounting records income and expenses when the cash is received or paid, irrespective of when they are earned or incurred.

The main advantage of accrual accounting is that it provides a more accurate picture of a company’s financial position. It is because income and expenses are recorded when they are earned or incurred, not when the cash is received or paid. The main disadvantage of accrual accounting is that it can be more complex than cash accounting.

Registering a Business Questions

Why Form a Limited Company?

When you form a limited company in the UK, you become the owner of a legal entity that is separate from yourself. It means that the company is responsible for its debts and liabilities, and you are not personally liable for them. This can be important if the company gets into financial difficulty, limiting the amount of money you could lose.

How to Register a Company in the UK  

To register a limited company in the UK, you need to submit several documents to companies house. You can submit the documents online or by post.

You can also choose to register your company using a registration service. A registration service will help you complete all of the required documents and submit them on your behalf.

How to Register as Self-Employed

To register as self-employed with HMRC, you need to have a Government Gateway account and register as self-employed.

How to Form a Partnership 

To form a partnership, you need to write a partnership agreement. The partnership agreement is a contract between the partners that sets out the terms and conditions of the partnership.

How to Name your Business 

When naming a business, choosing a unique and memorable name is essential. It would be best to make sure that the name is available to register as a trademark and the domain is available.

VAT Accounting Questions

How to Register for VAT? 

VAT registration is done through HMRC, you can either apply yourself, or your accountant can do it on your behalf.

What is the UK VAT Threshold? 

The UK VAT threshold is the amount of sales that a business must make before it is required to register for VAT. The threshold is currently £85,000 per year. It means that businesses that make less than £85,000 per year are not required to register for VAT.

What is Flat Rate VAT? 

The flat rate VAT scheme is a scheme that is available to businesses that have a taxable turnover of less than £150,000. Under the scheme, businesses can pay a fixed percentage of their taxable turnover as VAT, regardless of the amount of VAT that they actually owe.

The main advantage of the flat rate VAT scheme is that it is simpler than the standard VAT accounting scheme. A company only needs to calculate VAT on sales.

How do you Obtain a VAT number?

HMRC will give you a VAT identification number when you apply for registration.

How do you Deregister for VAT? 

When you deregister for VAT, you must submit a deregistration form to HMRC. You submit the form online.

What are the Current VAT Rates? 

The current VAT rates are:

  • Standard rate: 20%
  • Reduced rate: 5%
  • Zero rate: 0%

The standard VAT rate is 20% on most goods and services.

What is Annual Accounting VAT? 

Under the annual accounting VAT scheme, businesses submit a single VAT return and account for all of their VAT liabilities for the year. This scheme is only available to businesses that have a taxable turnover of less than £1.35 million.

If you complete an annual VAT return, payment is still required each quarter, and the final fee at the end of the year will be adjusted.

What is Cash Accounting VAT?

Cash accounting VAT is a scheme available to businesses with a taxable turnover of less than £1.35 million. Under the scheme, businesses only need to record the cash they receive and payout. This makes accounting simpler as businesses only need to keep track of their income and expenses in relation to cash.

The main advantage of cash accounting VAT is that it can be helpful for businesses that are having cash flow problems. This is because businesses can claim input tax on expenses as soon as the money is paid out and pay VAT when they receive the money from the customer.

Cash Accounting is when your VAT is calculated when you receive or pay cash.

Accounting Questions – General Business

What is Business Banking?

A limited company must legally have a business bank account to operate.

As self-employed, it is best to have a separate business bank account from your personal one as it makes it easier to have business transactions separate.

What Business Insurance do I Need?

There are several different business insurances that you may need to consider. If you are unsure which insurances you require, speak to a business insurance broker.

The most common types of business insurance are:

  • Property insurance
  • Employers liability insurance
  • Contents insurance
  • Public liability insurance

What’s a Business Plan? 

A business plan is a document that outlines the goals and objectives of a business and how it plans to achieve them. A business plan is typically needed when a company is starting up or looking to expand or make changes to its operations.

A business plan typically includes the following information:

  • The name and contact details of the business
  • The business objectives and goals
  • A description of the products or services that the business offers
  • Details of the target market for the products or services
  • A marketing strategy for the products or services
  • An outline of the operational structure of the business
  • Details of the business’s financial situation, including projected income and expenditure and a cash flow statement.

What is Making Tax Digital?

Making Tax Digital (MTD) is a government initiative that will require businesses to keep digital records and submit their tax returns electronically. The main aim of MTD is to make it easier for businesses to comply with their tax obligations.

Accounting Interview Questions

Most accounting interview questions will be about your accounting experience, and the interviewer will be looking to see how you think through problems. It is essential to do your research ahead of time. One way to practice is to use online resources or ask accounting professionals for help. When you are ready for the interview, make sure you are dressed professionally and arrive on time.

Below are 10 accounting questions for interviews.

Which Accounting Software Programs have you Used?

This question is designed to see how comfortable you are with using different programs and have experience working with any specific ones. Be sure to mention any programs you are familiar with and describe how you used them. If you are unsure of a particular program, take the time to research it before your interview. Being knowledgeable about various programs will show that you are versatile and capable of handling various tasks.

How do you Ensure Accuracy in Accounting?

When answering this question, be sure to discuss the importance of accuracy in accounting and how you work to maintain it. You can talk about any measures you take to ensure accuracy, such as double-checking calculations or reviewing your work for mistakes. Additionally, you can mention any experience you have had with ensuring accuracy in accounting, such as correcting errors or working with auditors. Demonstrating your commitment to accuracy will show the interviewer that you take your job seriously and produce accurate results.

What Industries have you Worked in?

Talking to the interviewer through your work experience is a great way to show them what you are capable of. When answering this question, discuss any industries you have worked in and highlight any accounting experience you have had. It will give the interviewer a better understanding of your skills and how they can be applied to their business.

What Accounting Qualifications do you Have?

Interviewers want to know that you have the necessary skills and qualifications for the job. When answering this question, be sure to list any accounting qualifications you have and describe what you learned from them. If you are currently studying accounting, be sure to mention this.

How Important are the Financial Statements for a Business?

Talking the interviewer through your understanding of financial statements is a great way to show them your knowledge and skills. When answering this question, be sure to discuss the importance of financial statements for businesses and explain why they are essential. Additionally, you can mention any experience you have had with reading or creating financial statements. It will show the interviewer that you have a widespread understanding of financial statements is integral to any accountant.

What’s the Difference Between Accounts Payable and Accounts Receivable?

Hiring managers want to know that you understand the basics of accounting. When answering this question, be sure to explain the difference between accounts payable and accounts receivable.

How have you Helped a Business to Improve its Accounting Procedures?

Talking to the interviewer through a specific example of how you have helped a business improve its accounting procedures is a great way to show them what you can do. When answering this question, be sure to discuss the steps you took to help the business and highlight any results you achieved. Additionally, you can mention any experience you have had with coaching or training employees.

What is your Accounting Knowledge?

When answering this question, be sure to discuss your understanding of bookkeeping, financial statements, and tax laws. Additionally, you can mention any experience you have had with auditing or consulting businesses.

Why do you want to Work in Accounting?

When answering this question, be sure to discuss your reasons for wanting to work in accounting. It will show the interviewer that you are passionate about the industry and have a genuine interest in the job. Additionally, you can mention any skills or qualifications you have that make you a good fit for the role.

Accounting Questions Conclusion

As a small business owner, you’re likely to encounter various accounting issues. We’ve gone through some of the most common accounting questions and provided a brief answer for each.

Remember that these are just general guidelines – to get a more complete understanding of accounting, it’s essential to do your research.

The accounting interview questions listed in this article will help you prepare for your following interview. By practising your answers to these questions, you can improve your chances of getting the job. The interviewer wants to know that you have the skills and knowledge required for the role, so be sure to highlight any accounting qualifications you have. Additionally, discuss your understanding of financial statements and bookkeeping. If you are currently studying accounting, be sure to mention this. Finally, explain why you want to work in accounting and discuss any experience you have had with coaching or training employees.

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