General Accounting Interview Questions & Answers

Question 1. What Are The Various Streams Of Accounting?

Answer :

There are three streams of accounting:

1. Financial Accounting: is the process in which business transactions are recorded systematically in the various books of accounts maintained by the organization in order to prepare financial statements. These financial statements are basically of two types: First is Profitability Statement or Profit and Loss Account and second is Balance Sheet.
2. Cost Accounting: is the process of classifying and recording of expenditure incurred during the operations of the organization in a systematic way, in order to as certain the cost of a cost center with the intention to control the cost.
3. Management Accounting: is the process of analysis, interpretation and presentation of accounting information collected with the help of financial accounting and cost accounting, in order to assist management in the process of decision making, creation of policy and day to day operation of an organization. Thus, it is clear from the above that the management accounting is based on financial accounting and cost accounting.

Question 2. Explain Financial Accounting. What Are Its Characteristic Features?

Answer :

Financial Accounting is the process in which business transactions are recorded systematically in the various books of accounts maintained by the organization in order to prepare financial statements. These financial statements are basically of two types: First is Profitability Statement or Profit and Loss Account and second is Balance Sheet.
Following are the characteristics features of Financial Accounting:

1. Monetary Transactions: In financial accounting only transactions in monetary terms are considered. Transactions not expressed in monetary terms do not find any place in financial accounting, howsoever important they may be from business point of view.
2. Historical Nature: Financial accounting considers only those transactions which are of historical nature i.e the transaction which have already taken place. No futuristic transactions find any place in financial accounting, howsoever important they may be from business point of view.
3. Legal Requirement: Financial accounting is a legal requirement. It is necessary to maintain the financial accounting and prepare financial statements there from. It is also obligatory to get these financial statements audited.
4. External Use: Financial accounting is for those people who are not part of decision making process regarding the organization like investors, customers, suppliers, financial institutions etc. Thus, it is for external use.
5. Disclosure of Financial Status: It discloses the financial status and financial performance of the business as a whole.
6. Interim Reports: Financial statements which are based on financial accounting are interim reports and cannot be the final ones.
7. Financial Accounting Process: The process of financial accounting gets affected due to the different accounting policies followed by the accountants. These accounting policies differ mainly in two areas: Valuation of inventory and Calculation of depreciation.

Question 3. Explain Cost Accounting. What Are The Objectives Of Doing It?

Answer :

Cost Accounting is the process of classifying and recording of expenditure incurred during the operations of the organization in a systematic way, in order to ascertain the cost of a cost center with the intention to control the cost.
Following are the basic three objectives of Cost Accounting:

1. Ascertainment of Cost and Profitability
2. Cost Control
3. Presentation of information for managerial decision making.

Question 4. What Are The Characteristic Features Of Cost Accounting?

Answer :

Following are the characteristic features of Cost Accounting:

1. Cost accounting views the whole organization from the individual component of the organization like a job, a process etc.
2. Cost accounting aims at ascertaining the profitability of individual components of the organization.
3. It is meant for those people who are part of the decision making process of the organization. Thus, it is only for internal use.
4. It is not a legal requirement. It is not compulsory to maintain cost accounting records.
5. In Cost Accounting, data is immediately available which facilitates in decision making process.
6. Cost Accounting considers each and every transaction, whether related to past or future which will have an impact on the business.

Question 5. Define Management Accounting. What Are Its Objectives?

Answer :

Management Accounting is the process of analysis, interpretation and presentation of accounting information collected with the help of financial accounting and cost accounting, in order to assist management in the process of decision making, creation of policy and day to day operation of an organization. Thus, it is clear from the above that the management accounting is based on financial accounting and cost accounting.

Following are the objectives of Management Accounting:

1. Measuring performance: Management accounting measures two types of performance. First is employee performance and the second is efficiency measurement. The actual performance is measured with the standardized performance and a report of deviation from the standard performance is reported to the management for the effective decision making and also to indicate the effectiveness of the methods in use. Both types of performance management are used to make corrective actions in order to improve performance.
2. Assess Risk: The aim of management accounting is to assess risk in order to maximize risk.
3. Allocation of Resources: is an important objective of Management Accounting.
4. Presentation of various financial statements to the Management.

Question 6. What Are The Limitations Of Management Accounting?

Answer :

Limitations of Management Accounting:

• Management Accounting is based on financial and cost accounting, in which historical data is used to make future decisions. Thus, strength and weakness of the managerial decisions are based on the strength and weakness of the accounting records.
• Management Accounting is useful only to those people who are in the decision making process.
• Tools and techniques used in management accounting only provide information and not ready made decision. Thus, it is only a supplementary service.
• In Management Accounting, decision is based on the manager’s institution as management try to avoid lengthy courses of scientific decision making.
• Personal prejudices and bias affect the decisions as the interpretation of financial information is based on personal judgment of the interpreter.

Question 7. What Is The Scope Of Management Accounting?

Answer :

Following is the scope of Management Accounting:

• Financial Accounting
• Cost Accounting
• Revaluation accounting
• Control Accounting
• Marginal Costing
• Budgetary Control
• Financial Planning and
• Break Even Analysis
• Decision accounting
• Reporting
• Taxation
• Audit.

Question 8. What Are The Various Techniques Used To Discharge The Function Of Management Accounting?

Answer :

Following are the technique used to discharge the function of management accounting:

• Marginal Costing
• Budgetary Control
• Standard Costing
• Uniform Costing.

Question 9. Compare Financial Accounting And Cost Accounting?

Answer :

1. Financial Accounting protects the interests of the outsiders dealing with the organization e.g shareholders, creditors etc. Whereas reports of Cost Accounting is used for the internal purpose by the management to enable the same in discharging various functions in a proper manner.
2. Maintenance of Financial Accounting records and preparation of financial statements is a legal requirement whereas Cost Accounting is not a legal requirement.
3. Financial Accounting is concerned about the calculation of profits and state of affairs of the organization as whole whereas Cost accounting deals in cost ascertainment and calculation of profitability of the individual products, departments etc.
4. Financial Accounting considers only transactions of historical financial nature whereas Cost Accounting considers not only historical data but also future events.
5. Financial Accounting reports are prepared in the standard formats in accordance with GAAP whereas Cost accounting information is reported in whatever form management wants.

Question 10. Compare Financial Accounting And Management Accounting?

Answer :

1. Financial Accounting reports are used by outside parties such as creditors, shareholders, tax authorities etc. whereas Management Accounting reports are used by managers inside the organization for planning, directing, controlling and taking decisions.
2. In Financial Accounting, only historical financial transactions are considered and do not consider non financial transactions whereas in Managerial Accounting emphasis is on decisions affecting the future, thus it may consider future data as well as non financial factors.
3. Maintenance of financial accounting records and preparation of financial statements is a legal requirement whereas Management Accounting is not at all legal requirement. Moreover, these systems have their own reporting formats.
4. In Financial Accounting, precision of information is required whereas in Management Accounting timeliness of information is required.
5. In Financial Accounting, only summarized data is prepared for the entire organization whereas in Management Accounting detailed reports are prepared about products, departments, employees and customer.
6. Preparation of Financial Accounting is based of Generally Accepted Accounting Principles whereas Management Accounting does not follow such principles to prepare reports.
7. Financial reports generated by the Financial Accounting are required to be accurate whereas accuracy is not the prerequisite of management accounting.

Question 11. Compare Cost Accounting And Management Accounting?

Answer :

1. The scope of management accounting is broader than that of cost accounting.
2. Both the accounting streams are not a legal requirement.
3. Cost accounting provides only cost information for managerial use whereas management accounting provides all types of accounting information i.e., cost accounting as well as financial accounting information.
4. In Cost accounting, the main emphasis is on cost ascertainment and cost control whereas in management accounting the main emphasis is on decision-making.
5. The various techniques used by cost accounting are standard costing, budgetary control, marginal costing and cost-volume-profit analysis, uniform costing and inter-firm comparison, etc. whereas management accounting also uses these techniques but also uses techniques like ratio analysis, funds flow statement, statistical analysis etc.
6. Cost Accounting is a part of Management Accounting whereas Management accounting is an extension of managerial aspects of cost accounting with the ultimate intention to protect the interests of the business.

Question 12. What Do You Mean By Accounting Concepts? List Them.

Answer :

Accounting concepts are those basis assumptions upon which basic process of accounting is based.
Following are the basic accounting concepts:

1. Business Entity Concept
2. Dual Aspect Concept
3. Going Concern Concept
4. Accounting Period
5. Concept Cost Concept
6. Money Measurement Concept
7. Matching Concept.

Question 13. Explain Business Entity Concept?

Answer :

Business Entity Concept:
According to this concept, the business has a separate legal identity than the person who owns the business. The accounting process is carried out for the business and not for the person who is carrying out the business. This concept is applicable to both, corporate and non corporate organizations.

Question 14. Explain Dual Aspect Concept?

Answer :

Dual Aspect Concept:
According to this concept, every transaction has two affects. This basic relationship between assets and liabilities which means that the assets are equal to the liabilities remains the same.

Question 15. Explain Going Concern Concept?

Answer :

Going Concern Concept:
According to this concept, the organization is going to be in existence for an indefinite period of time and is not likely to close down the business in the shorter period of time. This affects the valuation of assets and liabilities.

Question 16. Explain Accounting Period Concept?

Answer :

Accounting Period Concept:
According to this concept, the indefinite period of time is divided into shorter time periods, each one being in the form of Accounting period, in order to facilitate the preparation of financial statements on periodical basis. Selection of accounting period depends on characteristics like business organization, statutory requirements etc.

Question 17. Explain Cost Concept?

Answer :

Cost Concept:
According to this concept, an asset is recorded at the cost at which it is acquired instead of taking current market prices of various assets.

Question 18. Explain Money Measurement Concept?

Answer :

Money Measurement Concept:
According to this concept, only those transactions find place in the accounting records, which can be expressed in terms of money. This is the major drawback of financial accounting and financial statements.

Question 19. Explain Matching Concept?

Answer :

Matching Concept:
According to this concept, while calculating the profits during the accounting period in a correct manner, all the expenses and costs incurred during the period, whether paid or not, should be matched with the income generated during the period.

Question 20. Explain Convention Of Conservation?

Answer :

Convention of Conservation:
This accounting convention is generally expressed as to “anticipate all the future losses and expenses, without considering the future incomes and profits unless they are actually realized.” This concept emphasizes that profits should never be overstated or anticipated. This convention generally applies to the valuation of current assets as they are valued at cost or market price whichever is lower.

Question 21. Explain Convention Of Materiality?

Answer :

Convention of Materiality: 
This accounting convention proposed that while accounting only those transactions will be considered which have material impact on financial status of the organization and other transactions which have insignificant effect will be ignored.. It gives relative importance to an item or event.

Question 22. Explain Convention Of Consistency?

Answer :

Convention of Consistency: 
This accounting convention proposes that the same accounting principles, procedures and policies should be used consistently on a period to period basis for preparing financial statements to facilitate comparison of financial statements on period to period basis. If any changes are made in the accounting procedures or policies, then it should be disclosed explicitly while preparing the financial statements.

Question 23. What Are The Various Systems Of Accounting? Explain Them.

Answer :

There are two systems of Accounting:

1. Cash System of Accounting: This system records only cash receipts and payments. This system assumes that there are no credit transactions. In this system of accounting, expenses are considered only when they are paid and incomes are considered when they are actually received. This system is used by the organizations which are established for non profit purpose. But this system is considered to be defective in nature as it does not show the actual profits earned and the current state of affairs of the organization.
2. Mercantile or Accrual System of Accounting: In this system, expenses and incomes are considered during that period to which they pertain. This system of accounting is considered to be ideal but it may result into unrealized profits which might reflect in the books of the accounts on which the organization have to pay taxes too. All the company forms of organization are legally required to follow Mercantile or Accrual System of Accounting.

Question 24. What Are The Different Types Of Expenditures Considered For The Purpose Of Accounting?

Answer :

For the accounting purpose expenditures are classified in three types:

Capital Expenditure is an amount incurred for acquiring the long term assets such as land, building, equipments which are continually used for the purpose of earning revenue. These are not meant for sale. These costs are recorded in accounts namely Plant, Property, Equipment. Benefits from such expenditure are spread over several accounting years.
E.g. Interest on capital paid, Expenditure on purchase or installation of an asset, brokerage and commission paid.

Revenue Expenditure is the expenditure incurred in one accounting year and the benefits from which is also enjoyed in the same period only. This expenditure does not increase the earning capacity of the business but maintains the existing earning capacity of the business. It included all the expenses which are incurred during day to day running of business. The benefits of this expenditure are for short period and are not forwarded to the next year. This expenditure is on recurring nature.
Eg: Purchase of raw material, selling and distribution expenses, Salaries, wages etc.

Deferred Revenue Expenditure is a revenue expenditure which has been incurred during an accounting year but the benefit of which may be extended to a number of years. And these are charged to profit and loss account.
E.g. Development expenditure, Advertisement etc.

Question 25. What Are Capital Expenditures? Is It Ok To Consider These Expenditures While Calculating The Profitability Of During A Certain Period?

Answer :

Capital Expenditure is an amount incurred for acquiring the long term assets such as land, building, equipments which are continually used for the purpose of earning revenue. These are not meant for sale. These costs are recorded in accounts namely Plant, Property, Equipment. Benefits from such expenditure are spread over several accounting years.
E.g. Interest on capital paid, Expenditure on purchase or installation of an asset, brokerage and commission paid.

No, Capital expenditure should not be considered while calculating profitability as benefits incurred from the capital expenditure are long term benefits and cannot be shown in the same financial years in which they were paid for. They need to be spread over a number of years to show the true position in balance sheet as well as profit and loss account.

Question 26. Explain Revenue Expenditure. Does It Affect The Profitability Statement In A Period? Explain.

Answer :

Revenue Expenditure is the expenditure incurred in one accounting year and the benefits from which is also enjoyed in the same period only. This expenditure does not increase the earning capacity of the business but maintains the existing earning capacity of the business. It included all the expenses which are incurred during day to day running of business. The benefits of this expenditure are for short period and are not forwarded to the next year. This expenditure is on recurring nature.
As the return on revenue expenditure is received in the same period thus the entries relating to the revenue expenditure will affect the profitability statements as all the entries are passed in the same accounting year, the year in which they were incurred.

Question 27. Explain Deferred Expenditures. How Are These Expenses Dealt With In Profitability Statement?

Answer :

Deferred Revenue Expenditure is revenue expenditure, incurred to receive benefits over a number of years say 3 or 5 years. These expenses are neither incurred to acquire capital assets nor the benefits of such expenditure is received in the same accounting period during which they were paid. Thus they don’t affect profitability statement as they are not transferred to the profitability statement in the period during which they are paid for. They are charged to profit and loss account over a number of years depending upon the benefit accrued.

Question 28. What Is A Balance Sheet? Why Is It Prepared?

Answer :

Balance Sheet is a Statement showing financial position of the business on a particular date. It has two side one source of funds i.e Liabilities, the left side of the balance sheet and application of funds i.e assets, the right side of the balance sheet. It is prepared after preparing trading and profit and loss account and has balances of real and personal accounts grouped and arranged in a proper way as assets and liabilities. It is prepared to know the exact financial position of the business on the last date of the financial year.

Question 29. List The Type Of Items Which Appear Under The Liability Side Of A Balance Sheet?

Answer :

Items which appear under the liability side of Balance Sheet are:

• Capital
• Long Term Liabilities
• Loan from bank
• Mortgage
• Current Liabilities
• Sundry Creditors
• Advance from Customers
• Outstanding Expenses
• Income Received in Advance.

Question 30. What Types Of Items Appear Under The Assets Side?

Answer :

Items which appear under the assets side of Balance Sheet are:

Fixed Assets:

• Land,
• Building,
• Machinery,
• Furniture,
• Vehicles,
• Computers
• Investments

Current Assets:

• Stock,
• Sundry Debtors,
• Cash Balance,
• Bank Balance,
• Prepaid Expenses.

Question 31. What Are Adjustment Entries? Why Are They Passed?

Answer :

Adjustment entries are the entries which are passed at the end of each accounting period to adjust the nominal and other accounts so that correct net profit or net loss is indicated in profit and loss account and balance sheet may also represent the true and fair view of the financial condition of the business.

It is essential to pass these adjustment entries before preparing final statements. Otherwise in the absence of these entries the profit and loss statement will be misleading and balance sheet will not show the true financial condition of the business.

Question 32. Explain Bank Reconciliation Statement. Why Is It Prepared?

Answer :

Bank Reconciliation Statement is a statement prepared to reconcile the balances of cash book maintained by the concern and pass book maintained by the bank at periodical intervals. At the end of every month entries in the cash book are compared with the entries in the pass book. The causes of differences in balances of both the books are scrutinized and then reconciliation statement is prepared. This statement is prepared for a special purpose and once in a month. It is prepared with a view to indicate items which cause difference between the balances as per the bank columns of the cash book and the bank pass book at a particular date.

Question 33. What Are The Reasons Which Cause Pass Book Of The Bank And Your Bank Book Not Tally?

Answer :

• Cheques deposited into the bank but not yet collected
• Cheques issued but not yet presented for payment
• Bank charges
• Amount collected by bank on standing instructions of the concern.
• Amount paid by the bank on standing instructions of the concern.
• Interest debited by the bank
• Interest credited by the bank
• Direct payment by customers into the bank account
• Dishonour of cheques
• Clerical errors.

Question 34. What Are The Important Things To Be Remembered While Preparing A Bank Reconciliation Statement?

Answer :

While preparing a bank reconciliation statement following important points need to be remembered:

1. Bank Reconciliation Statement is prepared either by starting with the Bank pass book balance or Cash book balance.
2. If the balance of the Cash book is taken as a starting point then Cash book balance is to be adjusted in accordance with the entries passed in the Bank pass book and vice versa. For example: If the balance is taken as per the Cash book then the following items will be added:

• Cheques issued but not presented for payment;
• Amount credited in Passbook but not in Cash book;
• Deposits made in the bank directly;
• Wrong credits given by bank;
• Interest credited in the Passbook.

The following items will be subtracted:

• Cheques deposited but not cleared;
• Interest/Bank Charges debited by bank
• Direct payments made by bank not entered in Cash book
• Cheques dishonoured not recorded in cash book
• Wrong debits given by bank
• If it is prepared with the Bank balance as per the bank passbook, then the above procedure will be reversed i.e the items will be added to the pass book which were deducted from the cash book balance and those items will be deducted from the bank pass book balance which were added to the cash book balance.

Question 35. What Are The Groups Under Which Errors In Accounting Are Placed?

Answer :

Errors in accounting are placed in the following main groups:

• Error of Omission
• Error of Commission
• Error of Principle
• Compensating Error.

Question 36. What Are The Types Of Errors Which Have An Effect On Trial Balance?

Answer :

Following are the types of errors which affect agreement of Trial Balance:

• Wrong totaling of subsidiary books
• Posting on the wrong side of the account
• Posting of the wrong amount
• Omission of posting an amount in the ledger
• Error of balancing.

Question 37. What Type Of Errors Do Not Affect The Trial Balance?

Answer :

Following are the types of errors which do not affect the Trial Balance:

• Compensating Error
• Errors of Principle
• Errors of Omission
• Errors of Commission
• Wrong amount recorded in the subsidiary books.

Question 38. What Steps Would You Take To Locate The Errors In Case Trial Balance Disagrees?

Answer :

In case Trial Balance disagrees, following steps should be taken to locate the errors:

• Totalling of all the subsidiary books and trial balance should be checked carefully.
• Opening balances of all the accounts are properly brought down in the current year’s books of account.
• Ledger accounts have been properly balanced and the balances of ledger accounts have been correctly shown in the trial balance.
• To locate some errors the difference in the trial balance in halved.
• Another way is dividing the difference in the trial balance by 9.
• If the difference gets divisible without leaving any reminder that indicates the transposition of the amounts.
• To locate certain other errors, current year trial balance can be compared with the trial balance of the previous year.

Question 39. What Is Cost Accountancy? What Are The Objects Of Cost Accountancy?

Answer :

Cost accountancy is the application of costing and cost accounting principles, methods and techniques to the science, art and practice of cost control and the ascertainment of profitability as well as the presentation of information for the purpose of managerial decision making.
Following are the objects of Cost Accountancy:

• Ascertainment of Cost and Profitability
• Determining Selling Price
• Facilitating Cost Control
• Presentation of information for effective managerial decision
• Provide basis for operating policy
• Facilitating preparation of financial or other statements.

Question 40. What Is The Difference Between Costing And Cost Accounting?

Answer :

Costing is the process of ascertaining costs whereas cost accounting is the process of recording various costs in a systematic manner, in order to prepare statistical date to ascertain cost.

Question 41. What Is Cost Centre?

Answer :

Cost centre is defined as a location, machine, person, department, division, or any equipment or group of these, in relation to which direct and indirect costs may be ascertained and used for the purpose of cost control. Thus, an organization for the costing purposes is divided in convenient units and one of the convenient units is known as cost centre. Example: collecting, sorting, washing of clothes are the various activities which are separate cost centre in a laundry. The cost centre facilitates this function of cost control. Thus, correct identification of cost centre is a prerequisite for the successful implementation of cost accounting process. This also facilitates the fixation of responsibility in the correct manner.

Question 42. Explain Direct Cost And Indirect Cost?

Answer :

Direct Cost are all the expenses which can be identified with the individual product, service or job cost centre. In the manufacturing process of products, materials are purchased, labors are hired and wages are paid to them. All these take active and direct part in the manufacturing process.

Indirect Cost are all the expenses which cannot be identified with the individual product, service or job cost centre. The totals of indirect costs are termed as overheads. Example: salaries of storekeepers, foremen, work manager’s salary etc.

Question 43. Explain Fixed, Variable And Semi-variable Costs?

Answer :

Fixed Cost is the cost which remains constant or unaffected by variations in the volume of output within a given period of time. Example: Rent or rates, Insurance charges, etc.

Variable Cost is the cost which varies directly in proportion with every increase or decrease in the volume of output with a given a period of time. Example: Wages paid to labours, cost of direct material, consumable stores, etc.

Semi-variable Cost is the cost which is neither fixed nor variable in nature. These remain fixed at certain level of operations while may vary proportionately at other levels of operations. Example: maintenance cost, repairs, power, etc.

Question 44. Explain Controllable And Uncontrollable Costs?

Answer :

Controllable Cost are the costs which can be influenced by the action of a specified member of the undertaking. They are incurred in a particular responsibility centers can be influenced by the action of the executive heading that responsibility centre. For example: Direct labor cost, direct material cost, direct expenses controllable by the shop level management.

Uncontrollable Cost are the costs which cannot be influenced by the action of a specified member of the undertaking. For example: a foreman in charge of a tool room can only control costs pertaining to the same department and the matters which come directly under his control, not the costs apportioned to other department. The expenditure which is controllable by an individual may be uncontrollable by another individual.

Question 45. Explain Normal And Abnormal Costs?

Answer :

Normal Cost are the normal or regular costs which are incurred in the normal conditions during the normal operations of the organization. They are the sum of actual direct materials cost, actual labor cost and other direct expense. Example: repairs, maintenance, salaries paid to employees.

Abnormal Cost are the costs which are unusual or irregular which are not incurred due to abnormal situations of the operations or productions. Example: destruction due to fire, shut down of machinery, lock outs, etc.

Question 46. Explain Opportunity Cost And Differential Cost?

Answer :

Opportunity Cost is the cost incurred by the organization when one alternative is selected over another. For example: A person has Rs. 100000 and he has two options to invest his money, either invests in fixed deposit scheme or buy a land with the money. If he decides to put is money to buy the land then the loss of interest which he could have received on fixed deposit would be an opportunity cost.

Differential Cost is the difference between the costs of two alternatives. It includes both cost increase and cost decrease. It can be either variable or fixed. Example: Cost of first alternative = 10000; Cost of second alternative = 5000; Differential Cost = 10000 – 5000 = 5000.

Question 47. Explain Sunk Cost?

Answer :

Sunk Cost is the sum that has already been incurred and cannot be recovered by any decision made now or in future. This cost is also called stranded cost. Example: A special purpose machine was bought by a company for Rs. 100000. The machine was used to make the product for which it was bought and now it is obsolete and cannot be sold. And it will be unwise to continue using that obsolete product to recover the original cost of the machine. In order words, Rs. 100000 already spent on that machine cannot be recovered in future. Such costs are said to be sunk costs and should be ignored in decision making process.

Question 48. What Things Would You Take Into Consideration While Installing A Costing System?

Answer :

Following things should be taken into consideration while installing a costing system:

• Nature of the Product is a very important deciding factor in installing an effective costing system.
• Nature of the Organization should be considered before installing costing system.
• Objectives of the Organization should be met with the installed costing system.
• Manufacturing Process: Before installing the costing system the technicalities of the manufacturing process should be studied carefully.
• Technical Details of the business must be studied before introducing new costing system.
• The system should be informative and simple. The system should be simple and easy to use in order to maintain various cost records.
• Reporting Systems: The costing system should be designed in such a way that reports are generated in a proper way to facilitate the cost control decisions.
• The costing system should be elastic and capable of adapting according to the changing environment.

Question 49. What Problems You May Face While Installing A Costing System?

Answer :

While installing a Costing System an Organization may face the following problems:

• Lack of Support from Top Management Resistance and non cooperation from the Staff.
• Shortage of trained staff.
• Non suitability for the nature of product and nature of business.
• The cost involved in installing this system may be too high.

Question 50. What Are The Various Elements Of Costs?

Answer :

There are three elements of cost:

Material Cost: This is the cost of material or the commodity used by the organization for its production purpose. Material is the substance, from which a product is made. Thus, it may be in a raw or a manufactured state. It can be direct or indirect.
          Direct Material Cost forms an integral part of the finished product and is identified with the individual cost centre. It is also described as process material, stores material, production material, etc. Example: Raw materials purchased or purchased primary packing material, etc.
       Indirect Material Cost is used for ancillary purposes of the business and cannot be conveniently identified with the individual cost centre. Example: Consumable stores, oil and waste, printing and stationery material etc.

Labour Cost: This is the cost, incurred in the form of remuneration paid to the employees or labours of the organisation. The workforce required to convert material into finished product is called labour. It can be direct or indirect.
          Direct Labour Cost is the cost incurred on those employees who directly take part in the manufacturing process and easily identified with the individual cost centre.
       Indirect Labour Cost is the cost incurred on those employees who do not directly take part in the manufacturing process and cannot identified with the individual cost centre. Example: salary of foreman, salesmen, director’s salary, etc.

Expenses: are the costs of services provided to the organisation. It can be direct or indirect.
       Direct Expenses are the expenses which can be directly identified with the individual cost centres. Example: hire charges of machinery, cost of defective work for a particular job or contract etc.
          Indirect Expenses are the expenses which cannot be directly identified with the individual cost centres. Example: rent, lighting, telephone expenses, etc.

Question 51. What Are Overheads? How Are They Classified?

Answer :

Overheads are the aggregate of Indirect Material cost, Indirect Labour and Indirect Expenses. Thus, sum of all indirect costs are overheads. They are of three types:

• Factory Overheads
• Office and Administration Overheads
• Selling and Distribution Overheads.

Question 52. Explain Gross Profit?

Answer :

Gross Profit is a company’s revenue minus its cost of goods sold. It is also known as gross margin and gross income. It is calculated by subtracting all costs related to sales i.e. manufacturing expenses, raw materials, labour, selling and advertisement expenses from sales. It is an indication of the managements’ efficiency to use labour and material in the production process.

Gross Profit = Net Sales – Cost of Goods Sold

Question 53. Explain Net Profit?

Answer :

Net Profit/ Operating Profit Net profit, also known as operating profit is actual earnings of the company in a given period of time. It is a measure of the profitability after accounting for all costs. In simple terms, net profit is the money left over after paying all the expenses including taxes and interest. It is the calculated by subtracting total expenses from total revenues. Net income can be either distributed among shareholders of the company or held by the firm as retained earnings for the future purpose .

Net Profit = Gross Profit – Total Operating Expenses – Taxes – Interest.

Question 54. What Are The Steps In Procurement Of Material?

Answer :

Following are the steps in procurement of material:
Purchase Requisition is an indication to the purchase department to purchase certain material required for the production. Following particulars appear in the purchase requisition:

• Material to be purchased
• When it is required
• How much to be purchased
• Selection of Source of Supply
• Single Tender
• Limited Tender
• Open Tender
• Global Tender
• Purchase Order
• Description of Materials to be supplied
• Quantity to be supplied
• Cash and trade discount Rates at which materials are supplied
• Additional charges e.g. Excise duty, Sales tax, packing charges, insurance Instructions in respect of delivery
• Guarantee clause
• Inspection clause
• Method of settlement of disputes
• Terms of payment Receipt and Inspection
• After the receipt of materials, inspection of the material is done. Inspection of materials means that the quantity actually received is compared with the quantity ordered; also the quality of the material is inspected.

Invoice received from the supplier is compared along with the purchase order, goods received note and inspection note.

Question 55. Why Should Over Stocking Be Avoided?

Answer :

Due to the following consequences over stocking should be avoided:

• Funds get blocked which could be used elsewhere
• More storage facilities are required
• High costs of storage and maintenance
• Deterioration of quality and obsolescence of stock
• High Insurance cost More security and safety measures.

Question 56. What Can Be The Consequences Of Under Stocking?

Answer :

The following can be the consequences of under stocking:

• Production process cannot be operated efficiently, resulting delivery schedules.
• Firm may end up paying an idle labour force due to the production hold ups.
• Organisation may loose its important customers, due to the delay in meeting customers’ orders.
• Unfavourable prices and quality Increased administration costs.
• Due to under stocking it will not be easy for the organization to meet the unexpected demands of customers.

Question 57. Explain Following Types Of Tenders?

Answer :

Single Tender : When only one source of supply is available then single tender is addressed to the selected supplier.
Limited Tender : This type of tender is addressed to a limited number of suppliers, who are the reliable source of supply.
Open Tender : is open to all the suppliers within the country who can supply the required quantity and quality of materials. Such invitation is made by advertising in newspapers, journals etc.
Global Tender : is open to anybody from any part of the world to supply the required quantity and quality of materials.

Question 58. What Can Be The Discrepancies In Material Receipt?

Answer :

There are two categories of material discrepancies:
First category includes:

• Quantity received in excess
• Quantity received in short
• Quantity damaged
• Receipt of incorrect quantity of material.

These discrepancies are normally caused by the transportation system.
Second category includes:

• Discrepancies in quality of material supplied.

These discrepancies are caused by the manufacturer.

Question 59. Differentiate Between Bin Card And Stores Ledger?

Answer :

• Bin Card is a quantitative record of the individual item of its receipts, issues and closing balance whereas Stores Ledger records both the quantity and cost of receipts, issues and balances of item of material received.
• Bin Card is prepared by stores department whereas Stores Ledger is prepared by costing department.
• In Bin Card system, entries are made immediately after each transaction. In Store Ledger, entries are made periodically.
• In Bin Card, postings are made before a transaction. In Store Ledger, posting is made after a transaction.
• Bin Card is kept attached to the bins inside the store as to enable to identify the stock. Store Ledger is kept outside the store.

Question 60. What Can Be The Reasons For Bin Card And Stores Ledger Not Getting Reconciled?

Answer :

The following can be the reasons for bin card and stores ledger for not getting reconciled:

• Arithmetical error in calculating balances of the sheets.
• If posting of the transaction has been made on wrong bin card or stores ledger sheet.
• If issues transactions are treated as receipt transaction or vice versa, then this may create the difference in both the balances.
• Non posting of certain amount in any of the sheets.

Question 61. Explain Valuation Of Receipts?

Answer :

Valuation of receipts is the price billed in the invoices by the supplier. Following points should be kept in mind for this purpose:

• The trade discount is deducted from the basic price and all other amounts as billed by the supplier are added, like excise duty, sales tax, octroi duty, etc.
• Joint costs may be distributed on the basis of the basic price of the material.
• In case of imported material, the cost of the material consists of a basic price, customs duty, clearing charges, transport chares, etc.

Question 62. Explain Valuation Of Issues And Valuation Of Returns?

Answer :

Valuation of issues is a complex process because the material may be issued out of various lots which might have been purchased at various prices. Following methods are used for this purpose:

• First in First out(FIFO)
• Last in First out (LIFO)
• Average Price Method
• Simple Average Method
• Weighted Average Method
• Highest in First out
• Market Price
• Specific Price
• Standard Price

Valuation of returns indicates the material returned by the production department to stores department. This valuation is done on two basis:

• At the same price at which issued
• At the current price of issues.

Question 63. Explain Average Price Method?

Answer :

Average Price Method - is the method by which the value of total assets or expenses is assumed to be equal to the average cost of the total assets or expenses. Under this method, it is assumed that the cost of inventory is based on the average cost of the goods available for sale during the period. It is computed by dividing the total cost of goods by the total units which gives a weighted average unit cost for the units of the closing inventory.

Question 64. Explain Weighted Average Method?

Answer :

Weighted Average Method - is the method of calculation in which the weighted average of both the lot sizes as well as the prices of the lot. This method is best for valuing material issues. This method is very useful where the prices and quantities of items vary. Practically, this method is very simple to calculate.

Question 65. What Are The Techniques Of Inventory Control?

Answer :

The techniques of inventory control are:

• Economic Order Quantity
• Fixation of Inventory Levels
• Maximum Level
• Minimum Level
• Average Level
• Re-order Level
• Danger Level.

Question 66. What Is Meant By Spin-off?

Answer :

Spin off is creating new company by selling or distributing the shares of existing company.

Question 67. What Is Difference Between Budget & Budgeting?

Answer :

An estimation of the revenue and expenses over a specified future period of time. A budget can be made for a person, family, group of people, business, government, country, multinational organization or just about anything else that makes and spends money. A budget is a microeconomic concept that shows the tradeoff made when one good is exchanged for another.

Budgeting lies at the foundation of every financial plan. It doesn’t matter if you’re living paycheck to paycheck or earning six-figures a year, you need to know where your money is going if you want to have a handle on your finances. Unlike what you might believe, budgeting isn’t all about restricting what you spend money on and cutting out all the fun in your life. It’s really about understanding how much money you have, where it goes, and then planning how to best allocate those funds. Here’s everything you need to help you create and maintain a budget.

Question 68. What Is The Difference Between Journal Voucher And Contra?

Answer :

journal voucher is the voucher in which all the adjustment related entries and non cash non bank transactions are entered in journal eg-dep, some of them book the bills in journal and while they make a payment they record in payment eg-contractor bill.

contra appears two times in two sides of a account an account will be treated as contra when:

1. cash deposited in bank
2. cash with drawn from bank for office use
3. cheques deposited in bank
4. cheques withdrawn for office use
5. transfers from one account to another account.

Question 69. What Is Tds And Sale Tax Return?

Answer :

TDS (tax deducted at sources) .The person while making payments of income, covered by the scheme are responsible to deducted TDS and deposit the same in govt treasury with stipulated time . exp-salary, job work, rent, commission etc.

Sale Tax return means annual return against your profit.

Question 70. What Is The Difference Of Fund Flow Statement And Cash Flow Statement?

Answer :

Fund flow deals with transaction within financial year (One year) whereas Cash flow Statement record only cash transaction.

Question 71. What Is Goodwill?

Answer :

Goodwill is an intangible asset of a company which includes company reputation, fame etc., through goodwill company share value may increases.

Question 72. What Is Golden Rules Of Account?

Answer :

personal a/c - debit the receiver, credit the giver.
real a/c - debit what’s comes in, credit what’s goes out.
nominal a/c - debit all expenses & losses, credit all incomes and gains.

Question 73. Definition Of 'generally Accepted Accounting Principles - Gaap'?

Answer :

The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information.

Question 74. What Is General Accounting Service?

Answer :

General accounting includes bookkeeping methods used for recording of financial transactions of a business or a company. Companies use the double entry book keeping system for recording all financial transactions.
It includes maintaining and keeping a record of various accounting day books including:

• Purchase book
• Sales book
• Cash book
• General ledger
• Supplier's ledger
• Customer ledger

A book keeper writes up and maintains various "Daybooks" . He is responsible for making sure that correct transactions are recorded in the correct daybook. A trial balance is finally made with the help of these accounting books and ledgers.

Question 75. What Does A General Accountant Do?

Answer :

As a General Accountant, you will:

• Perform a variety of accounting or auditing work;
• Receive and process for payment all invoices following established procedures and guidelines;
• Assist other processing staff as needed;
• Independently interpret terms of payment and exercise sound judgement and decision making in processing vendor payments;
• Establish long-term cooperative relationships with Purchasing staff, receivers of goods and other areas of the corporation who are Accounts Payable customers;
• Establish excellent working relationships with Manitoba Hydro's suppliers;
• Maintain current knowledge of Corporate policies, procedures and regulations related to the processing of invoices for payment;
• Practice continuous improvement by analyzing internal processes and being alert for innovative opportunities in daily work.