30+ Senior Finance Associate Interview Questions and Answers

Linking between Income Statement, Balance sheet and cash flow statement

• The net income from the income statement is added to the retained earnings in the balance sheet

• Changes in assets and liabilities in the balance sheet affect the cash flow statement

• Net cash flow from operating activities in the cash flow statement is derived from the income statement and balance sheet

• Net cash flow from investing and financing activities in the cash flow statement is derived from the balance...read more

Deferred expenses are costs that have been paid but not yet incurred, and should be recognized as assets on the balance sheet.

• Deferred expenses are costs that have been paid in advance but have not yet been incurred.

• They are recognized as assets on the balance sheet until they are actually incurred.

• Once the expenses are incurred, they are then recognized as expenses on the income statement.

• Common examples of deferred expenses include prepaid insurance, prepaid rent, and prepa...read more

Intercompany transactions are transactions between entities within the same company group, used for internal financing or transfer of goods/services.

• Intercompany transactions are common in multinational corporations to transfer funds or goods/services between subsidiaries.

• The purpose of intercompany transactions is to streamline operations, allocate costs, and manage cash flow within the company group.

• Accounting treatment for intercompany transactions involves eliminating the...read more

Cash Conversion Cycle is the time taken to convert inventory into cash.

• It measures the efficiency of a company's cash flow.

• It includes the time taken to sell inventory, collect receivables, and pay suppliers.

• A shorter cycle indicates better cash flow management.

• Formula: CCC = DIO + DSO - DPO

• DIO = Days Inventory Outstanding, DSO = Days Sales Outstanding, DPO = Days Payable Outstanding

Deferred revenue expenditure is an expense that is incurred in one accounting period but is recognized over a period of time.

• Deferred revenue expenditure is an expense that benefits multiple accounting periods.

• It is recorded as an asset on the balance sheet and amortized over the periods that benefit from it.

• Journal entry for deferred revenue expenditure involves debiting the asset account and crediting the expense account.

• Example: If a company spends money on advertising tha...read more

Initial accounting treatment of debt involves recording the debt as a liability, while subsequent treatments include interest expense recognition and debt repayment.

• Initial accounting treatment involves recording the debt as a liability on the balance sheet.

• Subsequent treatments include recognizing interest expense on the income statement as it accrues.

• Debt repayments are recorded as a reduction in the liability on the balance sheet.

• Debt can be classified as either short-term...read more

Accrual accounting recognizes revenue and expenses when they are incurred, regardless of when cash is exchanged.

• Accrual accounting records revenue when it is earned, not necessarily when cash is received.

• Expenses are recognized when they are incurred, not necessarily when they are paid.

• Accrual accounting provides a more accurate representation of a company's financial position and performance.

• Examples include recognizing revenue from a sale when the product is delivered, and ...read more

Compensation accounting involves recording and reporting expenses related to employee compensation, including salaries, bonuses, and benefits.

• Compensation accounting includes tracking and recording salaries, bonuses, benefits, and other forms of employee compensation.

• It involves ensuring accurate and timely reporting of compensation expenses in financial statements.

• Treatment of compensation accounting may vary based on the type of compensation, such as stock options, retireme...read more

Prepayment is an advance payment made for goods or services before they are received, and its accounting treatment involves recognizing the prepayment as an asset initially and then gradually expensing it as the goods or services are received.

• Prepayment is an advance payment made by a company to a supplier or vendor before the goods or services are delivered.

• In accounting, prepayments are initially recorded as assets on the balance sheet since the company has paid for somethi...read more

Yes, I have extensive experience with invoicing and collections in my previous roles.

• Managed invoicing process for multiple clients, ensuring accuracy and timeliness

• Implemented collection strategies to reduce outstanding balances and improve cash flow

• Utilized accounting software to track invoices and monitor collections progress

• Communicated with clients regarding payment reminders and resolution of billing discrepancies

Cash flow statement is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents.

• It provides information about the cash generated and used during a specific period.

• It consists of three sections: operating activities, investing activities, and financing activities.

• Operating activities include cash flows from day-to-day business operations.

• Investing activities include cash flows from buying and selling assets.

• Financing ac...read more

Accounts Payable is money owed by a company to its suppliers while Accounts Receivable is money owed to a company by its customers.

• Accounts Payable is a liability account that tracks the money a company owes to its suppliers for goods or services received but not yet paid for.

• Accounts Receivable is an asset account that tracks the money a company is owed by its customers for goods or services provided but not yet paid for.

• Both accounts are important for managing a company's c...read more

Restricted cash is cash that is set aside for a specific purpose and cannot be used for other expenses.

• Restricted cash is typically held in a separate account or in a separate section of the general ledger.

• It is often used to ensure that funds are available for a specific purpose, such as a legal settlement or a capital expenditure.

• Examples of restricted cash include security deposits, escrow accounts, and funds held in trust.

• Restricted cash is reported separately on the bala...read more

Share repurchase is a process of buying back company's own shares from the market.

• Share repurchase is also known as stock buyback.

• It is a way for companies to return value to shareholders.

• It can be done through open market purchases or tender offers.

• Share repurchase reduces the number of outstanding shares, increasing earnings per share.

• It can also be used to prevent hostile takeovers.

• Example: Apple repurchased $75 billion worth of its own shares in 2018.

• Example: Coca-Cola ha...read more

Normalised profit is the adjusted profit of a company, excluding one-time or non-recurring items.

• Normalised profit is used to provide a more accurate picture of a company's ongoing profitability.

• It excludes one-time gains or losses, such as the sale of assets or restructuring costs.

• Normalised profit is calculated by adjusting the reported profit for these one-time items.

• It is useful for comparing the profitability of a company over time or against its peers.

• For example, if a ...read more

Different methods of pricing include cost-plus pricing, value-based pricing, competitive pricing, and dynamic pricing.

• Cost-plus pricing involves adding a markup to the cost of production to determine the selling price.

• Value-based pricing sets prices based on the perceived value to the customer rather than the cost of production.

• Competitive pricing involves setting prices based on what competitors are charging for similar products or services.

• Dynamic pricing adjusts prices in ...read more

Revenue recognition is the process of recording revenue in the financial statements when it is earned, regardless of when the payment is received.

• Revenue recognition is a key accounting principle that determines when revenue should be recorded in the financial statements.

• Revenue is typically recognized when it is earned, meaning when goods or services are delivered or performed.

• The timing of revenue recognition can vary depending on the type of industry and the specific terms...read more

Depreciation is the allocation of the cost of tangible assets over their useful life, while amortization is the allocation of the cost of intangible assets over their useful life.

• Depreciation applies to tangible assets such as buildings, vehicles, and machinery.

• Amortization applies to intangible assets such as patents, copyrights, and trademarks.

• Depreciation is recorded on the income statement as an expense, reducing net income.

• Amortization is also recorded as an expense, but...read more

PTP cycle refers to the Procure-to-Pay cycle, which is the process of purchasing goods or services and paying for them.

• PTP cycle involves several steps such as identifying the need for a product or service, selecting a vendor, negotiating terms, creating a purchase order, receiving the goods or services, and processing the invoice for payment.

• It is used to streamline the procurement process, ensure compliance with company policies and regulations, and control costs.

• An example...read more

IFRS 16 and 17 are accounting standards related to lease accounting and insurance contracts, respectively.

• IFRS 16 deals with lease accounting and requires lessees to recognize assets and liabilities for all leases with a term of more than 12 months.

• IFRS 17 focuses on insurance contracts and aims to provide more transparent and useful information about an insurer's financial position and performance.

• Both standards have significant impacts on financial reporting and require com...read more

Amortization is the process of spreading out the cost of an intangible asset over its useful life.

• Amortization is a method used to allocate the cost of intangible assets over time.

• It is similar to depreciation for tangible assets, but applies to intangible assets like patents, copyrights, and trademarks.

• The amortization expense is recorded on the income statement and reduces the asset's value on the balance sheet.

• The formula for calculating amortization is: (Cost of asset - R...read more

Cash is recognized in a business when it is received or paid out, following the principles of accrual accounting.

• Cash is recognized when it is received from customers for goods or services provided.

• Cash is recognized when it is paid out for expenses incurred by the business.

• Cash transactions are recorded in the cash account on the balance sheet.

• Accrual accounting principles dictate that revenue is recognized when earned and expenses are recognized when incurred, regardless of...read more

IND AS of PPE refers to the accounting standards for Property, Plant and Equipment in India. Provision for DD refers to the provision made for Due Diligence.

• IND AS of PPE lays down the guidelines for recognition, measurement, depreciation, and disclosure of PPE in financial statements.

• It requires entities to recognize PPE at cost, which includes all expenditures incurred to bring the asset to its working condition.

• Provision for DD refers to the amount set aside by a company t...read more

Accounts Payable is the amount of money a company owes to its vendors or suppliers for goods or services received.

• It is a liability account in the company's balance sheet.

• It includes invoices, bills, and other expenses that are yet to be paid.

• AP is managed by the accounting department and is an important part of cash flow management.

• Example: If a company purchases $10,000 worth of goods from a supplier and agrees to pay in 30 days, the $10,000 is recorded as accounts payable ...read more

PE ratio is a financial metric used to evaluate the relative value of a company's stock.

• PE ratio is calculated by dividing the market price per share by the earnings per share (EPS)

• It helps investors determine if a stock is overvalued or undervalued

• A high PE ratio may indicate that a stock is overvalued, while a low PE ratio may indicate that a stock is undervalued

• PE ratio can vary by industry and should be compared to peers within the same industry

• For example, a technology c...read more

Prepayment is a payment made in advance before the actual due date.

• Prepayment is a payment made before the scheduled due date of a financial obligation.

• It is often made to reduce the total outstanding balance and save on interest costs.

• Common examples include prepaying a mortgage, rent, or utility bills.

• Prepayments can also be made towards loans or credit card balances.

Deferred revenue is a liability that arises when a company receives payment for goods or services that it has not yet delivered.

• Deferred revenue represents unearned income that will be recognized as revenue in the future.

• It is recorded as a liability on the balance sheet until the goods or services are provided.

• Common examples include prepaid subscriptions, advance payments for services, and gift cards.

• Deferred revenue is gradually recognized as revenue over time as the compa...read more

Finance after sales is crucial for analyzing profitability, managing cash flow, and making strategic decisions.

• Analyzing profitability: Finance helps in determining the profitability of sales activities and identifying areas for improvement.

• Managing cash flow: Finance ensures that sales revenue is effectively utilized to cover expenses and invest in growth.

• Making strategic decisions: Finance provides insights for strategic planning, budgeting, and forecasting to drive busines...read more

Checkpoints while processing

• Ensure accuracy of data input

• Verify calculations and formulas

• Check for any errors or discrepancies

• Ensure compliance with regulations and policies

• Review and approve final output

• Maintain proper documentation

• Communicate any issues or concerns to relevant parties