5 Trick Questions Frequently Asked in Accounting Job Interviews!

Navigating the Trickiest Questions in Accounting Interviews

Accounting interviews can be a minefield of tricky questions designed to test your knowledge, problem-solving skills, and ability to think on your feet. As an experienced controller who has sat on both sides of the interview table, I've encountered my fair share of these challenging questions. In this in-depth blog post, I'll share the five trickiest accounting interview questions I've come across, along with detailed explanations on how to tackle them successfully.

Question 1: Why is Net Income Different from Cash Flow?

This question gets to the heart of a fundamental difference between two key financial statements - the income statement and the statement of cash flows. On the surface, it may seem like net income (the bottom line on the income statement) should equal the cash flow for the period. However, there are several important factors that create a disconnect between these two metrics:

• Credit Sales: When you record revenue on the income statement, it's often based on credit sales, where you've issued an invoice but haven't yet received the cash. This creates a timing difference between when you recognize the revenue and when the cash is collected.

• Accrued Expenses: Similarly, the income statement records expenses when they're incurred, even if the cash hasn't been paid out yet. Things like accrued salaries, rent, and utilities contribute to this difference between net income and cash flow.

• Non-Cash Items: Expenses like depreciation and amortization affect net income but don't involve any cash outflows, further widening the gap between net income and cash flow.

• Financing and Investing Activities: Items like loan proceeds, capital expenditures, and other financing/investing cash flows impact the statement of cash flows but not the income statement's net income.

To tie these two financial statements together, you can point the interviewer to the statement of cash flows, which reconciles net income to the actual cash generated or used by the business. By walking through the adjustments made on the cash flow statement, you can clearly explain the reasons why net income and cash flow differ.

Question 2: If Working Capital is Negative, is it a Sign of Trouble?

Working capital is a measure of a company's liquidity, calculated as the difference between current assets (cash, accounts receivable, inventory, etc.) and current liabilities (accounts payable, accrued expenses, etc.). A negative working capital position doesn't necessarily mean the company is in trouble - it depends on the specific circumstances of the business.

There are a few scenarios where a negative working capital position may not be a cause for concern:

• Cash-Based Businesses: Companies that operate on a cash basis, like many restaurants, often have a negative working capital position because they collect cash upfront from customers but can delay payments to suppliers and other creditors.

• Efficient Inventory Management: Businesses that are able to quickly turn over their inventory and collect receivables faster than they need to pay suppliers may intentionally operate with negative working capital to maximize cash flow and returns on capital.

• Seasonal Fluctuations: Some companies experience significant swings in working capital throughout the year due to the seasonal nature of their business. A negative position at certain times may be normal and expected.

The key is to look at the bigger picture and understand the drivers behind the working capital position. Negative working capital isn't automatically a red flag - it depends on the company's business model, industry, and overall financial health. The interviewer is likely testing your ability to analyze the situation critically and avoid jumping to conclusions.

Question 3: What is the Current Corporate Income Tax Rate?

This may seem like a straightforward factual question, but the interviewer is likely using it to gauge your general awareness of the tax landscape and your ability to stay up-to-date on relevant financial information.

In the United States, the current federal corporate income tax rate is 21%, which was established by the Tax Cuts and Jobs Act of 2017. However, the tax rate can vary depending on the company's location, industry, and other factors. Some key points to consider in your response:

• Be prepared to cite the current federal corporate tax rate, but also acknowledge that state and local taxes may add to the overall tax burden.

• Demonstrate your awareness of recent tax law changes and your ability to stay informed on evolving tax regulations.

• Highlight your understanding of how the corporate tax rate can impact a company's financial performance and your role in managing the tax implications.

By showing your familiarity with the current tax environment, you'll convey your attention to detail and your commitment to staying up-to-date on the latest financial and regulatory developments.

Question 4: If Days Sales Outstanding (DSO) is High, How Do You Fix It?

Days sales outstanding (DSO) is a metric that measures the average number of days it takes a company to collect payment from its customers after a sale has been made. A high DSO can indicate issues with the company's credit and collections processes, which can negatively impact cash flow and working capital.

If the interviewer asks how you would address a high DSO, here are some key strategies to consider:

• Identify Slow Payers: Analyze your customer data to pinpoint which clients are consistently slow to pay their invoices. Prioritize collections efforts on these accounts.

• Review Payment Terms: Evaluate whether your standard payment terms (e.g., net 30, net 45) are appropriate for your industry and customer base. Consider shortening payment terms to encourage faster payments.

• Streamline the Invoicing and Payment Process: Make it as easy as possible for customers to pay their invoices. Offer multiple payment methods, provide clear instructions on invoices, and consider implementing online payment portals.

• Implement Late Payment Penalties: Establish and consistently enforce late payment fees or interest charges to incentivize customers to pay on time.

• Improve Communication: Proactively follow up with customers before invoices become overdue. Maintain open dialogues to understand any payment challenges they may be facing.

By demonstrating your ability to analyze the root causes of a high DSO and proposing practical solutions, you'll show the interviewer your problem-solving skills and your commitment to improving the company's cash flow management.

Question 5: How Do You Record Profit on the Sale of a TV?

This question may seem straightforward on the surface, but the interviewer is likely trying to assess your understanding of the fundamental accounting principles behind recording a sale transaction.

Let's assume the sale details are as follows:

• Sale price of the TV: $1,000

• Cost of the TV: $800

The key accounting entries would be:

• Debit Cash: $1,000 (to record the cash received from the sale)

• Credit Sales: $1,000 (to record the revenue from the sale)

• Debit Cost of Goods Sold: $800 (to record the cost of the TV sold)

• Credit Inventory: $800 (to reduce the inventory balance by the cost of the TV sold)

The important thing to note here is that "profit" is not a general ledger account that you would debit or credit directly. Profit is the difference between the sales revenue and the cost of goods sold, which is calculated on the income statement. In this case, the profit on the sale of the TV would be $200 ($1,000 sales - $800 cost).

The interviewer is likely testing whether you understand the distinction between the accounting entries and the financial reporting of profit. By walking through the proper journal entries and explaining how profit is derived, you can demonstrate your solid grasp of fundamental accounting principles.

Navigating Tricky Accounting Interview Questions with Confidence

Accounting interviews are designed to challenge you and assess your technical knowledge, critical thinking skills, and ability to handle pressure. By familiarizing yourself with the types of tricky questions you may encounter and practicing effective response strategies, you can approach these interviews with confidence and showcase your capabilities as a finance and accounting professional.

Remember, when faced with a challenging question, don't be afraid to ask for clarification, take a moment to gather your thoughts, and provide a well-reasoned, step-by-step explanation. Demonstrating your problem-solving skills and attention to detail will go a long way in impressing the interviewer and increasing your chances of landing the accounting role you're seeking.

Good luck with your upcoming accounting interviews! If you're looking for more resources to help you prepare, be sure to check out the Controller Academy and the Night Before the Accounting Interview Guide course. These comprehensive programs can provide you with the knowledge and strategies you need to ace even the trickiest accounting interview questions.