Basic Accounting Interview Questions and Answers: 1. What is accounting?

Answer: Accounting is the

process of recording, classifying, summarizing, andinterpreting financial transactions to provide useful
information for decision-making.2. What is the accounting equation? Answer: The accounting equation
is: Assets = Liabilities + Equity.3. What is double-entry bookkeeping? Answer: It is an accounting system
where each transaction affects at least two accounts,one debit, and one credit, ensuring the accounting
equation stays balanced.4. What are the different types of accounts? Answer: The three types are
Personal, Real, and Nominal accounts.5. What is accrual accounting? Answer: Accrual accounting
records revenues and expenses when they are earned or incurred, regardless of when the cash is
received or paid.6. What is a trial balance? Answer: A trial balance is a list of all ledger accounts and
their balances at a particular time, used to check the accuracy of bookkeeping.7. What is depreciation?
Answer: Depreciation is the allocation of the cost of a tangible fixed asset over its usefullife.8. What are
the different methods of depreciation? Answer: Common methods include the straight-line method,
declining balance method,and units of production method.9. What is a balance sheet? Answer: A
balance sheet is a financial statement showing a company’s assets, liabilities,and equity at a specific
point in time.10. What is an income statement? Answer: An income statement shows a company's
revenues, expenses, and profits over a specific period.11. What is the difference between accounts
receivable and accounts payable? Answer: Accounts receivable is the money owed to a company by its
customers, whileaccounts payable is the money a company owes to its suppliers.12. What is a journal
entry? Answer: A journal entry is a record of a financial transaction in the accounting system,showing
debit and credit accounts.13. What is a ledger? Answer: A ledger is a book or digital record where all
financial transactions arecategorized by account.14. What is a cash flow statement? Answer: A cash flow
statement reports the cash inflows and outflows during a specificperiod, categorized into operating,
investing, and financing activities. adDownload to read ad-free 5 15. What is working capital? Answer:
Working capital is the difference between a company’s current assets andcurrent liabilities, indicating
short-term financial health.16. What is goodwill? Answer: Goodwill is an intangible asset representing
the excess value paid over the fair market value of a company’s net assets during an acquisition.17.
What is a contingent liability? Answer: A contingent liability is a potential liability that may occur
depending on theoutcome of a future event.18. What is the purpose of financial statements? Answer:
Financial statements provide information about a company’s financialperformance and position to
stakeholders for decision-making purposes.19. What are prepaid expenses? Answer: Prepaid expenses
are payments made for goods or services to be received inthe future, recorded as an asset until used.20.
What is revenue recognition? Answer: Revenue recognition is the principle that revenue is recorded
when it is earned,regardless of when the payment is received.21. What is a trial balance used for?
Answer: A trial balance is used to ensure that total debits equal total credits, indicatingthat the books
are balanced.22. What is the matching principle in accounting? Answer: The matching principle requires
that expenses be matched with the revenuesthey help to generate during the same accounting
period.23. What is retained earnings? Answer: Retained earnings are the accumulated profits of a
company that have not beendistributed to shareholders as dividends.24. What is a deferred expense?
Answer: A deferred expense is a cost that has been incurred but will be recognized asan expense in
future periods.25. What is the difference between accrual and cash accounting? Answer: Accrual
accounting records income and expenses when they are earned or incurred, while cash accounting
records them when cash is received or paid.26. What are adjusting entries? Answer: Adjusting entries
are journal entries made at the end of an accounting period toallocate income and expenses to the
correct period.27. What is the difference between gross and net income? Answer: Gross income is the
total revenue minus the cost of goods sold, while netincome is the profit after all expenses, including
taxes and interest, have been deducted.28. What is a fiscal year? Answer: A fiscal year is a 12-month
period used for accounting purposes, which may or may not align with the calendar year. adDownload
to read ad-free 5 29. What is the difference between tangible and intangible assets? Answer: Tangible
assets have a physical form (e.g., machinery), while intangible assetsdo not (e.g., patents,
trademarks).30. What is inventory valuation? Answer: Inventory valuation is the method used to assign
value to a company’sinventory, such as FIFO (First-In-First-Out) or LIFO (Last-In-First-Out). Intermediate
Accounting Interview Questions and Answers: 31. What is a bank reconciliation? Answer: A bank
reconciliation is the process of matching the balances in a company'saccounting records with the
corresponding information on a bank statement.32. What is the difference between capital and revenue
expenditures? Answer: Capital expenditures are for acquiring or upgrading fixed assets, while
revenueexpenditures are for day-to-day operating costs.33. What are financial ratios? Answer: Financial
ratios are calculations using financial statement figures to evaluate acompany’s performance, liquidity,
profitability, and solvency.34. What is EBIT? Answer: EBIT stands for Earnings Before Interest and Taxes,
which measures acompany's profitability from its core operations.35. What is EBITDA? Answer: EBITDA
stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, a common measure of a
company’s operational performance.36. What is a contra account? Answer: A contra account is an
account used to reduce the value of a related account.For example, accumulated depreciation is a
contra asset account that reduces the valueof fixed assets.37. What is a trial balance error? Answer: A
trial balance error occurs when the total debits and credits do not match, oftendue to omissions,
misclassifications, or incorrect entries.38. What is the difference between liquidity and solvency?
Answer: Liquidity refers to a company’s ability to meet short-term obligations, whilesolvency refers to
its ability to meet long-term obligations.39. What is the going concern assumption? Answer: The going
concern assumption assumes that a company will continue itsoperations into the foreseeable future
without the need to liquidate.40. What are accrued expenses? Answer: Accrued expenses are expenses
that have been incurred but not yet paid or recorded at the end of the accounting period.41. What is a
liability? Answer: A liability is an obligation arising from past transactions or events that thecompany
must settle in the future, usually through payment of cash or goods. adDownload to read ad-free 5 42.
What is the difference between current and non-current liabilities? Answer: Current liabilities are
obligations due within one year, while non-current liabilitiesare due after more than one year.43. What
is capital structure? Answer: Capital structure is the mix of debt and equity that a company uses to
finance itsoperations and growth.44. What is the purpose of a statement of changes in equity? Answer:
It shows the changes in a company’s equity, such as retained earnings andshare capital, over a
period.45. What is a budget? Answer: A budget is a financial plan that estimates future income and
expenses for aspecific period.46. What is variance analysis? Answer: Variance analysis is the process of
analyzing the differences between actualand budgeted figures and investigating the reasons for the
variances.47. What is the accruals concept? Answer: The accruals concept states that income and
expenses should be recordedwhen they are earned or incurred, not when the cash is exchanged.48.
What are retained earnings? Answer: Retained earnings are the accumulated profits a company has kept
over time,after paying dividends to shareholders.49. What is the concept of conservatism in accounting?
Answer: Conservatism is an accounting principle that requires recording expenses andliabilities as soon
as possible but only recording revenues when they are assured.50. What is a classified balance sheet?
Answer: A classified balance sheet categorizes assets, liabilities, and equity intosubcategories such as
current and non-current. Advanced Accounting Interview Questions and Answers: 51. What is
consolidation in accounting? Answer: Consolidation is the process of combining the financial statements
of a parentcompany and its subsidiaries into one unified set of statements.52. What are intercompany
transactions, and how are they eliminated inconsolidation? Answer: Intercompany transactions are
financial activities between two entities within thesame corporate group. They are eliminated during
consolidation to preventdouble-counting.53. What is goodwill impairment? Answer: Goodwill
impairment occurs when the carrying value of goodwill exceeds its fair market value, requiring a write-
down on the financial statements.54. How is deferred tax calculated? Answer: Deferred tax is calculated
based on the differences between the book value of adDownload to read ad-free 5 assets or liabilities in
the financial statements and their tax value, multiplied by theapplicable tax rate.55. What are the key
differences between GAAP and IFRS? Answer: GAAP is rule-based, while IFRS is principle-based. IFRS
allows revaluation of fixed assets, while GAAP does not, among other differences in inventory
accounting,revenue recognition, and financial statement formats.56. What is minority interest, and
where is it recorded? Answer: Minority interest represents the portion of equity ownership in a
subsidiary notowned by the parent company. It is recorded under the equity section of the
consolidatedbalance sheet.57. How do you account for a lease under IFRS 16? Answer: Under IFRS 16,
most leases are capitalized on the balance sheet, with thelessee recognizing a right-of-use asset and a
corresponding lease liability.58. What is a hedge in accounting, and how is it accounted for? Answer: A
hedge is a financial strategy used to reduce the risk of adverse pricemovements in an asset. Hedge
accounting adjusts the timing of the recognition of gainsor losses on the hedged item and the hedging
instrument.59. What is fair value accounting? Answer: Fair value accounting is the practice of measuring
assets and liabilities at their current market value, rather than their historical cost.60. What are the key
steps in performing a financial audit? Answer: The key steps include planning the audit, testing internal
controls, performingsubstantive tests on account balances, and issuing an audit report. Cost Accounting
Interview Questions and Answers: 61. What is cost accounting? Answer: Cost accounting is a process of
recording, classifying, and analyzing costsassociated with a company's products or services to aid
management decision-making.62. What are fixed and variable costs? Answer: Fixed costs remain
constant regardless of production levels, such as rent.Variable costs change in direct proportion to the
level of production, such as rawmaterials.63. What is a break-even point? Answer: The break-even point
is the level of sales at which total revenue equals totalcosts, resulting in no profit or loss.64. What is
activity-based costing (ABC)? Answer: ABC is a costing method that assigns overhead and indirect costs
to specificactivities related to the production of goods or services.65. What is the difference between
marginal costing and absorption costing? Answer: Marginal costing considers only variable costs in
product costing, whileabsorption costing includes both fixed and variable costs. adDownload to read ad-
free 5 66. How do you calculate cost of goods sold (COGS)? Answer: COGS is calculated as: Beginning
Inventory + Purchases during the period -Ending Inventory.67. What is a standard cost, and how is it
used in variance analysis? Answer: Standard cost is the predetermined cost of manufacturing a product.
Varianceanalysis compares standard costs to actual costs to evaluate performance.68. What are the
steps in preparing a cost sheet? Answer: The steps include determining direct material costs, direct
labor costs, directexpenses, and allocating overheads to determine the total cost of production.69. What
is a job costing system? Answer: Job costing tracks the costs associated with individual jobs or
projects,assigning costs to specific jobs based on direct labor, materials, and overhead.70. What is
process costing? Answer: Process costing is used when products are indistinguishable from one another
and produced in continuous processes. Costs are averaged over all units. Auditing Interview Questions
and Answers: 71. What is the difference between internal and external auditing? Answer: Internal
auditing is conducted by employees within the organization to evaluateinternal controls and operations.
External auditing is performed by independent auditorsto provide an opinion on the financial
statements.72. What is materiality in auditing? Answer: Materiality refers to the significance of financial
information or misstatementsthat could influence the economic decisions of users of financial
statements.73. What is an audit trail? Answer: An audit trail is a sequence of documents and records
that provide evidence of a transaction and help verify its accuracy and authenticity.74. What is a risk-
based audit approach? Answer: A risk-based audit approach focuses on areas of high risk to the
organization,allocating more resources to test and verify these areas thoroughly.75. What is a
substantive audit procedure? Answer: Substantive procedures are audit techniques used to test financial
statementbalances, transactions, and disclosures directly, such as verifying invoices or
performinginventory counts.76. What is the role of an auditor’s report? Answer: The auditor’s report
provides an independent opinion on whether a company'sfinancial statements are free from material
misstatement and are prepared inaccordance with applicable accounting standards.77. What is SOX
compliance? Answer: SOX (Sarbanes-Oxley Act) compliance refers to the regulations that public
adDownload to read ad-free 5 companies must follow to ensure accuracy in financial reporting and to
prevent fraud,including the assessment of internal controls.78. What are audit assertions? Answer:
Audit assertions are claims made by management regarding the accuracy andcompleteness of financial
statements. Examples include existence, completeness,valuation, and rights and obligations.79. What is
a management letter in auditing? Answer: A management letter is a report issued by auditors to the
company'smanagement highlighting internal control weaknesses and areas for improvement.80. What
are the different types of audit opinions? Answer: The four types of audit opinions are unqualified
(clean), qualified, adverse, anddisclaimer of opinion. Taxation Interview Questions and Answers: 81.
What is deferred tax liability? Answer: Deferred tax liability arises when taxable income is lower than
accountingincome due to temporary differences that will reverse in the future, resulting in higher
taxpayments.82. What is the difference between tax evasion and tax avoidance? Answer: Tax evasion is
illegal and involves deliberately misrepresenting financialinformation to reduce tax liability, while tax
avoidance is legal and involves using tax lawsto minimize tax obligations.83. What is VAT (Value Added
Tax)? Answer: VAT is a consumption tax levied on the value added to goods and services ateach stage of
production or distribution.84. What is the difference between direct and indirect taxes? Answer: Direct
taxes are paid directly to the government by individuals or entities (e.g.,income tax), while indirect taxes
are collected by intermediaries (e.g., sales tax).85. How are capital gains taxed? Answer: Capital gains
are taxed based on the profit realized from the sale of an asset.They may be classified as short-term or
long-term, depending on how long the asset washeld.86. What are the key components of tax planning?
Answer: Tax planning involves strategies to minimize tax liability through deductions,credits,
exemptions, and deferrals, while ensuring compliance with tax laws.87. What is the difference between
tax credits and tax deductions? Answer: Tax credits directly reduce the amount of tax owed, while tax
deductions reducetaxable income, which indirectly lowers the tax bill.88. What is a tax audit? Answer: A
tax audit is an examination of an individual or organization’s tax returns by thetax authorities to ensure
accuracy and compliance with tax laws. adDownload to read ad-free 5 89. What is transfer pricing?
Answer: Transfer pricing refers to the rules and methods for pricing transactionsbetween related
entities within a multinational company to ensure taxes are properlyallocated.90. How is income tax
calculated for corporations? Answer: Corporate income tax is calculated based on taxable income, which
is grossincome minus allowable deductions, multiplied by the applicable corporate tax rate. Top
Accounting Interview Questions and Answers In this section, we'll cover a wide range of accounting
interview questions, from basic toadvanced, to ensure you're well-prepared for any scenario.Q: What
are the three main financial statements? A: The three main financial statements are the Balance Sheet,
Income Statement (also knownas Profit and Loss Statement), and Cash Flow Statement.Q: Can you
explain the difference between bookkeeping and accounting? A: Bookkeeping involves systematically
recording financial transactions, while accountingencompasses a broader scope, including analyzing,
interpreting, and reporting financialinformation to stakeholders.Q: What is the accounting equation? A:
The accounting equation is Assets = Liabilities + Owner's Equity. This fundamental equationforms the
basis of the double-entry bookkeeping system.Q: What is the difference between accrual and cash-
based accounting? A: Accrual basis accounting records revenue when earned and expenses when
incurred,regardless of when cash changes hands. Cash basis accounting records transactions onlywhen
cash is received or paid.Q: What is depreciation, and why is it important? A: Depreciation is the
systematic allocation of an asset's cost over its useful life. It's importantbecause it matches the cost of
using an asset to the revenue it generates over time, providing amore accurate picture of a company's
financial performance.Q: Can you explain the concept of double-entry bookkeeping? A: Double-entry
bookkeeping is a system where every transaction affects at least two accounts.Each transaction is
recorded as both a debit to one account and a credit to another, ensuringthat the accounting equation
always remains in balance.Q: What is the difference between a trial balance and a balance sheet? A: A
trial balance is an internal document that lists all the account balances to ensure debitsequal credits. A
balance sheet is a financial statement that reports a company's assets,liabilities, and shareholders'
equity at a specific point in time.Q: What is working capital? A: Working capital is the difference
between a company's current assets and current liabilities. Itrepresents the short-term financial health
of a company and its ability to meet short-termobligations.Q: What is the purpose of a bank
reconciliation? adDownload to read ad-free 5 A: A bank reconciliation is performed to ensure that a
company's accounting records (cashbook) match the bank's records. It helps identify discrepancies,
errors, or fraudulent activities.Q: What is GAAP, and why is it important? A: GAAP stands for Generally
Accepted Accounting Principles. It's a set of standardizedguidelines for financial accounting used in the
United States. GAAP is important because itensures consistency and comparability in financial reporting
across different companies.Q: What is the difference between revenue and income? A: Revenue is the
total amount of money earned from sales of goods or services before anyexpenses are deducted.
Income, often referred to as net income or profit, is the amount left after all expenses have been
subtracted from revenue.Q: Can you explain what a journal entry is? A: A journal entry is a record of a
financial transaction in a company's accounting system. Ittypically includes the date of the transaction,
the accounts affected, and the amounts to bedebited and credited.Q: What is the purpose of a chart of
accounts? A: A chart of accounts is a listing of all accounts used in an organization's general ledger.
Itprovides a structured way to record and categorize financial transactions, making it easier toprepare
financial statements and analyze financial data.Q: What is the difference between a debit and a credit?
A: In accounting, debits increase asset and expense accounts and decrease liability, equity, andrevenue
accounts. Credits do the opposite: they decrease asset and expense accounts andincrease liability,
equity, and revenue accounts.Q: What is the purpose of an audit? A: An audit is an independent
examination of an organization's financial statements andrecords. Its purpose is to provide assurance
that the financial statements are free from materialmisstatement and present a true and fair view of the
company's financial position.Q: Can you explain what a fiscal year is? A: A fiscal year is a 12-month
period used by companies for accounting purposes and preparingfinancial statements. It may or may
not coincide with the calendar year, depending on thecompany's preference or industry norms.Q: What
is the difference between gross profit and net profit? A: Gross profit is the difference between revenue
and the cost of goods sold. Net profit, alsoknown as net income, is the amount remaining after all
expenses, including operating expenses,taxes, and interest, have been deducted from revenue.Q: What
is a ledger in accounting? A: A ledger is a record-keeping system used to store and organize financial
data. It contains allthe accounts of a company and shows the changes in these accounts resulting from
businesstransactions.Q: What is the purpose of a petty cash fund? A: A petty cash fund is a small amount
of cash kept on hand to pay for minor businessexpenses. It provides a convenient way to handle small,
routine expenses without the need for checks or formal purchasing procedures.Q: Can you explain what
accounts receivable means? adDownload to read ad-free A: Accounts receivable represents the money
owed to a company by its customers for goods or services provided on credit. It is considered a current
asset on the balance sheet.Q: What is the difference between a balance sheet and an income
statement? A: A balance sheet provides a snapshot of a company's financial position at a specific point
intime, showing assets, liabilities, and equity. An income statement shows the company's
financialperformance over a period of time, detailing revenues, expenses, and profit or loss.Q: What is
the purpose of a general ledger? A: The general ledger is the main accounting record of a business. It
contains all the accountsfor recording transactions relating to assets, liabilities, owners' equity, revenue,
and expenses.Q: Can you explain what FIFO and LIFO mean in inventory valuation? A: FIFO (First-In,
First-Out) and LIFO (Last-In, First-Out) are inventory valuation methods. FIFOassumes that the oldest
inventory items are sold first, while LIFO assumes that the newestinventory items are sold first. These
methods can significantly impact a company's reportedprofit and tax liability.Q: What is the purpose of a
trial balance? A: A trial balance is prepared to ensure that the total of all debit balances equals the total
of allcredit balances in the general ledger. It helps identify errors in the recording process and servesas a
basis for preparing financial statements.Q: Can you explain what a contra account is? A: A contra
account is an account that is paired with a related account and has an oppositenormal balance. For
example, Allowance for Doubtful Accounts is a contra-asset account that ispaired with Accounts
Receivable to show the net realizable value of receivables.Q: Can you explain the concept of goodwill in
accounting? A: Goodwill is an intangible asset that represents the excess of the purchase price over the
fair value of the net identifiable assets when one company acquires another. It reflects the value of a
company's reputation, customer base, brand name, and other non-quantifiable assets.Q: What is the
difference between financial accounting and managerial accounting? A: Financial accounting focuses on
preparing financial statements for external stakeholdersaccording to GAAP or IFRS. Managerial
accounting provides internal financial information tohelp managers make decisions, plan, and control
operations. It's not bound by GAAP and canbe more flexible in its reporting methods.Q: Can you explain
what a deferred tax liability is? A: A deferred tax liability is a tax obligation that a company has incurred
but has not yet paid. Itarises when there's a difference between the tax basis of an asset or liability and
its reportedamount in the financial statements, typically due to timing differences in revenue or
expenserecognition.Q: What is the purpose of a statement of cash flows, and what are its main
components? A: The statement of cash flows shows how changes in balance sheet accounts and
incomeaffect cash and cash equivalents. It's divided into three main sections: operating
activities,investing activities, and financing activities. This statement helps stakeholders understand
acompany's ability to generate cash and meet its obligations.Q: Can you explain the concept of
materiality in accounting? A: Materiality is a key concept in accounting that determines whether an item
is significantenough to be disclosed separately in the financial statements. An item is considered
material if 4 adDownload to read ad-free its omission or misstatement could influence the economic
decisions of users taken on the basisof the financial statements.Q: What is the difference between a
capital lease and an operating lease? A: A capital lease (now called a finance lease under ASC 842) is
treated as a purchase by thelessee and a sale by the lessor. The leased asset and liability are recorded
on the lessee'sbalance sheet. An operating lease is treated as a true lease in accounting, with lease
paymentsexpensed over the lease term. However, under new lease accounting standards, most
operatingleases are now also recorded on the balance sheet.Q: Can you explain what the conservatism
principle in accounting means? A: The conservatism principle states that when there is uncertainty in a
potential financialestimate, accountants should use the less optimistic estimate. This means anticipating
lossesbut not gains, ensuring that assets and income are not overstated.Q: What is the difference
between GAAP and IFRS? A: GAAP (Generally Accepted Accounting Principles) is the accounting standard
used in theUnited States, while IFRS (International Financial Reporting Standards) is used in
manycountries around the world. While they share many similarities, there are key differences inareas
such as inventory valuation, development costs, and the treatment of leases.Q: Can you explain what
transfer pricing is and why it's important? A: Transfer pricing refers to the pricing of goods, services, or
intellectual property betweenrelated entities within a multinational company. It's important because it
affects the allocation of profits between different parts of the company and can have significant tax
implications.Companies must ensure their transfer pricing policies comply with local tax laws
andinternational guidelines.Q: What is the purpose of a consolidated financial statement? A:
Consolidated financial statements combine the financial statements of a parent company andits
subsidiaries into a single set of financial statements. This provides a comprehensive view of the financial
position and performance of the entire group as if it were a single economic entity.Q: Can you explain
what a derivative is in financial accounting? A: A derivative is a financial instrument whose value is
derived from the value of underlyingassets, indexes, or entities. Common types include futures,
forwards, options, and swaps. Accounting for derivatives can be complex, often involving fair value
measurements and hedgeaccounting.Q: What is the difference between a compilation, a review, and an
audit? A: These are different levels of assurance provided by CPAs. A compilation is the lowest
level,where the CPA simply helps prepare financial statements without providing any assurance.
Areview provides limited assurance that no material modifications are needed to the
financialstatements. An audit provides the highest level of assurance, with the auditor expressing
anopinion on whether the financial statements are free from material misstatement.Q: Can you explain
what ASC 606 is and how it affects revenue recognition? A: ASC 606 is the revenue recognition standard
introduced by FASB. It provides a five-stepmodel for recognizing revenue: identify the contract, identify
performance obligations, determinethe transaction price, allocate the transaction price to the
performance obligations, andrecognize revenue when (or as) performance obligations are satisfied. This
standard aims to 0Unlock this documentUpload a document to download this document or subscribe to
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adDownload to read ad-free improve comparability of revenue recognition practices across entities,
industries, jurisdictions,and capital markets.Q: What is the difference between a direct write-off method
and an allowance method for baddebts? A: The direct write-off method records bad debt expense only
when a specific account isdeemed uncollectible. The allowance method estimates bad debts in advance,
creating anallowance for doubtful accounts. The allowance method is preferred under GAAP as it better
matches expenses to revenues in the period they are incurred.Q: Can you explain what a qualified
opinion in an audit report means? A: A qualified opinion is issued when the auditor concludes that the
financial statements arefairly presented, with the exception of a specific area. This could be due to a
scope limitation or a departure from GAAP that is material but not pervasive to the financial
statements.Q: What is the purpose of segment reporting in financial statements? A: Segment reporting
provides information about different business activities or geographicalareas within a diversified
company. It helps users of financial statements understand thecompany's performance and risks across
different lines of business or regions, which mighthave different growth rates, risks, and returns.Q: Can
you explain what a contingent liability is and how it's reported? A: A contingent liability is a potential
obligation that may occur depending on the outcome of anuncertain future event. According to GAAP, it
should be recorded if it's probable and the amountcan be reasonably estimated. If it's only possible, it
should be disclosed in the notes to thefinancial statements.Q: What is the difference between a
retrospective, current, and prospective application of anaccounting change? A: Retrospective
application adjusts prior periods as if the new accounting principle had alwaysbeen used. Current
application implements the change in the current period without adjustingprior periods. Prospective
application implements the change going forward from the date of thechange.Q: Can you explain what a
foreign currency translation adjustment is? A: A foreign currency translation adjustment arises when a
company consolidates financialstatements of foreign subsidiaries that use a different functional
currency. It represents theunrealized gain or loss from translating the foreign entity's financial
statements into the reportingcurrency and is reported in other comprehensive income.Q: What is the
purpose of an impairment test for long-lived assets? A: An impairment test is performed to ensure that
an asset is not carried on the balance sheet atmore than its recoverable amount. If the carrying amount
exceeds the recoverable amount, animpairment loss is recognized, reducing the asset's value on the
balance sheet.Q: What is the difference between return on assets (ROA) and return on equity (ROE)? A:
ROA measures a company's profitability relative to its total assets, while ROE measuresprofitability
relative to shareholders' equity.Q: What are the different methods of depreciation? A: Common
methods of depreciation include the straight-line method, declining balancemethod, and units of
production method.Q: Explain the accounting treatment of a dividend payment. 5 adDownload to read
ad-free A: Dividends are recorded as a reduction in retained earnings and an increase in the
liabilitiessection (as dividends payable) until they are paid.Q: What is the accrual concept in accounting?
A: The accrual concept means that transactions are recorded when they occur, regardless of when the
cash is received or paid.Q: What is the difference between financial accounting and management
accounting? A: Financial accounting focuses on preparing financial statements for external users,
whilemanagement accounting provides internal reports for decision-making by management