General Ledger Interview Ques ons & Answers

1. Golden Rules of Accoun ng

The golden rules of accoun ng are the fundamental principles that guide the recording of transac ons:

 Personal Account: Debit the receiver, credit the giver.

 Real Account: Debit what comes in, credit what goes out.

 Nominal Account: Debit all expenses and losses, credit all incomes and gains.
2. Accoun ng Equa on

The basic accoun ng equa on is:

Assets = Liabili es + Owners Equity

Assets = Liabili es + Capital + Retained Earnings

Assets = Liabili es + Capital + Revenues – Expenses – Dividends

This equa on must always be balanced, reflec ng the double-entry system of accoun ng.
3. Accruals with Journal Entries

Accrual accoun ng recognizes revenues and expenses when they are incurred, not necessarily when cash
is received or paid.

Example: Accrued Expense

 Journal Entry:

Debit: Expense Account

Credit: Accrued Expenses (Liability Account)

4. Prepaid with Journal Entries

Prepaid expenses are payments made in advance for goods or services to be received in the future.

Example: Prepaid Rent

 At the me of payment:
Debit: Prepaid Rent (Asset Account)
Credit: Cash/Bank

 At the end of the period (adjus ng entry):

Debit: Rent Expense
Credit: Prepaid Rent

5. Deprecia on with Journal Entries

Deprecia on is the alloca on of the cost of a tangible asset over its useful life.

Example: Deprecia on of Equipment

 Journal Entry:
Debit: Deprecia on Expense
Credit: Accumulated Deprecia on (Contra Asset Account)

6. Amor za on with Journal Entries

Amor za on is the gradual write-off of the cost of an intangible asset over its useful life.

Example: Amor za on of a Patent

 Journal Entry:
Debit: Amor za on Expense
Credit: Accumulated Amor za on
7. Sale of Asset (Profit & Loss) with Journal Entries

When an asset is sold, the gain or loss is recognized based on the difference between the selling price and
the book value of the asset.

Example: Sale of Machinery

 If sold at a profit:
Debit: Cash/Bank
Debit: Accumulated Deprecia on
Credit: Machinery (at original cost)
Credit: Gain on Sale of Machinery (Revenue)

 If sold at a loss:
Debit: Cash/Bank
Debit: Accumulated Deprecia on
Debit: Loss on Sale of Machinery (Expense)
Credit: Machinery (at original cost)

8. Provision

Provisions are liabili es of uncertain ming or amount. Examples include provision for bad debts and
provision for warran es.

Example: Provision for Bad Debts

 Journal Entry:
Debit: Bad Debt Expense
Credit: Provision for Bad Debts (Contra Asset Account)
9. Liabili es

Liabili es are obliga ons that the company needs to se le in the future, either by paying cash, transferring
assets, or providing services.

Example: Recording a Liability for Purchases

 Journal Entry:
Debit: Purchases/Inventory
Credit: Accounts Payable
10. Deferred Revenue with Journal Entries

Deferred revenue is money received by a business in advance for goods or services yet to be delivered.

Example: Deferred Revenue for a Subscrip on Service

 At the me of receipt:
Debit: Cash/Bank
Credit: Deferred Revenue (Liability Account)

 When the service is provided:

Debit: Deferred Revenue
Credit: Revenue

11. Unearned Revenue with Journal Entries

Unearned revenue is similar to deferred revenue; it is recorded when payment is received before the goods
or services are delivered.

Example: Unearned Revenue for a Prepaid Event

 At the me of receipt:
Debit: Cash/Bank
Credit: Unearned Revenue (Liability Account)

 When the event occurs:

Debit: Unearned Revenue
Credit: Revenue

12. Advance Received with Journal Entries

Advances received are prepayments from customers for goods or services to be provided in the future.

Example: Advance Payment for a Custom Order

 At the me of receipt:
Debit: Cash/Bank
Credit: Advance from Customers (Liability Account)

 When the goods are delivered:

Debit: Advance from Customers
Credit: Sales Revenue
13. Unbilled Revenue with Journal Entries

Unbilled revenue is recognized when a service has been performed but the invoice has not yet been issued.

Example: Unbilled Consul ng Services

 At the end of the period:

Debit: Unbilled Revenue (Asset Account)
Credit: Revenue

14. Fixed Assets with Journal Entries

Fixed assets are long-term tangible assets used in the opera ons of a business.

Example: Purchase of Machinery

 Journal Entry:
Debit: Machinery (Asset Account)
Credit: Cash/Bank or Accounts Payable

15. Intercompany with Journal Entries

Intercompany transac ons are transac ons between two subsidiaries of the same parent company.

Example: Sale of Goods between Subsidiaries

 For the selling subsidiary:

Debit: Accounts Receivable - Intercompany
Credit: Sales Revenue

 For the buying subsidiary:

Debit: Purchases/Inventory
Credit: Accounts Payable – Intercompany
16. Revenue Recogni on with Journal Entries

Revenue recogni on is the accoun ng principle that outlines the specific condi ons under which revenue
is recognized.

Example: Revenue Recogni on for a Delivered Product

 When the product is delivered:

Debit: Accounts Receivable
Credit: Sales Revenue

17. Bad Debts with Journal Entries

Bad debts are accounts receivable that are not expected to be collected.

Example: Wri ng off Bad Debts

 Journal Entry:
Debit: Bad Debt Expense
Credit: Accounts Receivable

18. Provision for Bad and Doub ul Debts with Journal Entries

This is an es mate of the receivables that might not be collected.

Example: Crea ng a Provision for Doub ul Debts

 Journal Entry:
Debit: Bad Debt Expense
Credit: Provision for Doub ul Debts (Contra Asset Account)
19. Accrued Expenses

Accrued expenses are expenses that have been incurred but not yet paid.

Example: Accrued Salaries

 Journal Entry:
Debit: Salaries Expense
Credit: Accrued Salaries (Liability Account)

20. Sundry Creditors

Sundry creditors are various suppliers to whom the business owes money for goods or services received.

Example: Recording a Purchase on Credit

 Journal Entry:
Debit: Purchases/Inventory
Credit: Sundry Creditors

21. Accounts Payable

Accounts payable are amounts a company owes to suppliers for items or services purchased on credit.

Example: Recording an Accounts Payable

 Journal Entry:
Debit: Purchases/Inventory
Credit: Accounts Payable
22. AP Cycle

The accounts payable cycle includes the en re process from purchasing goods or services to paying the
supplier.

Steps in the AP Cycle:

1. Determination of goods required

2. Procurement process
3. Search for suppliers
4. Request for proposal
5. Review receiving quotation
6. Negotiation
7. Purchase Order
8. The Supplier confirmation
9. Supplier duty
10. On successful deliver of goods
11. Invoice Processing – Invoice Entry
12. Payment
23. AP Aging

AP aging is a report that categorizes payables to suppliers based on the length of me an invoice has been
outstanding.

Example of AP Aging Categories:

 Current
 1-30 days past due
 31-60 days past due
 61-90 days past due
 Over 90 days past due

24. Instances where a vendor’s account, typically showing a Credit balance, might instead display a Debit
balance.

A vendor account may have a debit balance in cases such as overpayment, return of goods, or an advance
payment.

Example: Overpayment to a Vendor

 Journal Entry:
Debit: Accounts Payable (for the overpaid amount)
Credit: Cash/Bank

25. Two Way Match vs Three Way Match Invoice

 Two-Way Match: Compares the purchase order and the invoice.

 Three-Way Match: Compares the purchase order, the invoice, and the receiving report.

26. Debit Notes

A debit note is issued by a buyer to a seller to return goods received on credit.

Example: Return of Damaged Goods

 Journal Entry:
Debit: Accounts Payable
Credit: Purchase Returns
27. Credit Notes

A credit note is issued by a seller to a buyer acknowledging the return of goods.

Example: Issuing a Credit Note

 Journal Entry:
Debit: Sales Returns
Credit: Accounts Receivable

28. Accounts Receivable

Accounts receivable is amoun ng a company has a right to receive because it has sold goods or services
on credit.

Example: Recording a Sale on Credit

 Journal Entry:
Debit: Accounts Receivable
Credit: Sales Revenue
29. AR Cycle

The accounts receivable cycle includes the en re process from selling goods or services on credit to
collec ng the payment.

Steps in the AP Cycle:

1. Invoicing
2. Payments
3. Recording of Accounts Receivable Balance
4. Credit practices for customers
30. AR Aging

AR aging is a report that categorizes receivables from customers based on the length of me they have
been outstanding.

Example of AR Aging Categories:

 Current
 1-30 days past due
 31-60 days past due
 61-90 days past due
 Over 90 days past due

Look the below screenshot for better understanding

31. Bank Reconcilia on

Bank reconcilia on is the process of comparing the balance on a company's bank statement with its own
records.

Steps in Bank Reconcilia on:

1. Compare the bank statement balance with the cash account balance.

2. Adjust for outstanding checks and deposits in transit.

3. Record bank charges and interest earned.

4. Reconcile the adjusted bank balance with the cash account balance.

32. Credit Card Reconcilia on

Credit card reconcilia on is similar to bank reconcilia on but focuses on reconciling credit card statements
with internal records.

Steps in Credit Card Reconcilia on:

1. Compare credit card statement balance with the credit card account balance.

2. Adjust for outstanding transac ons and payments in transit.

3. Record credit card fees and interest charges.

4. Reconcile the adjusted credit card balance with the credit card account balance.

33. Impact of foreign exchange fluctua ons on monthly financial closures.

Foreign exchange fluctua ons impact the valua on of foreign currency transac ons and balances in
financial statements.

Example: Foreign Exchange Gain/Loss

 At the me of transac on:

Debit/Credit: Accounts Payable/Receivable (original amount)

Debit/Credit: Foreign Exchange Gain/Loss (P&L account)

 At the end of the period (adjus ng entry):

Debit/Credit: Foreign Exchange Gain/Loss (adjustment)

Credit/Debit: Accounts Payable/Receivable (adjustment)
34. Intercompany

Intercompany transac ons are transac ons between different en es within the same group of
companies.

35. Procurement

Procurement refers to the process of acquiring goods or services for a business.

36. Accounts Receivable

Accounts Receivable (AR) refers to the outstanding balances owed to a business by its customers for goods
or services delivered on credit.

Accounts Receivable is classified under the Current Assets sec on of the balance sheet.

37. Accounts Payable

Accounts Payable (AP) refers to the money a company owes to its suppliers or vendors for goods and
services purchased on credit.

Accounts Payable is classified under the Current Liabili es sec on of the balance sheet.

38. Travel & Expenses

Travel and expenses refer to costs incurred by employees while traveling for business purposes.

39. Fixed Assets

Fixed Assets, also known as Property, Plant, and Equipment (PP&E), are long-term tangible assets that are
used in the produc on or supply of goods and services, for rental to others, or for administra ve purposes.

These assets are expected to be used by the business for more than one accoun ng period, typically
exceeding one year.

Fixed Assets are classified under the Non-Current Assets sec on of the balance sheet.

40. Inventory

Inventory refers to goods held by a business for resale or for use in produc on.

41. Loan and Interest

Loans and interest refer to borrowed funds and the interest expense incurred on those funds.
42. Payroll

Payroll refers to the total amount of wages and salaries paid to employees by a business.

43. MIS Repor ng Process

MIS (Management Informa on System) repor ng involves collec ng and analysing data to aid decision-
making and improve business performance.

Example: Prepara on of Monthly MIS Report

 Compile financial data from various departments.

 Analyse key performance indicators (KPIs) such as revenue, expenses, and profitability.

 Present findings to management for decision-making.

44. Chart of Accounts

The Chart of Accounts is a structured list of all accounts used by a business, categorized by type (assets,
liabili es, equity, revenue, expenses).

It provides a framework for recording transac ons and preparing financial statements.

45. Trial Balance

A Trial Balance lists all ledger accounts with their debit and credit balances to ensure they balance (debits
equal credits).

It serves as a preliminary check of the accuracy of entries before preparing financial statements.

46. Adjus ng Entries

Adjus ng entries are made at the end of an accoun ng period to ensure that revenues and expenses are
recorded in the correct period, aligning with accrual accoun ng principles.

47. Closing Entries

Closing entries are made at the end of an accoun ng period to transfer the balances of temporary accounts
(revenue, expenses) to retained earnings or owner's equity, preparing the accounts for the next period.
48. Accounts Reconcilia on

Account reconcilia on involves comparing and verifying transac ons and balances between the General
Ledger and subsidiary ledgers or external statements (e.g., bank statements).

It ensures accuracy and integrity of financial data.

49. Account Analysis

Account analysis involves reviewing and interpre ng account balances and transac ons to understand
financial performance, iden fy trends, and make informed business decisions.
50. Month End Close

Month-end close refers to the process of finalizing financial statements and reports at the end of each
accoun ng period.

Steps in Month-End Close:

1. Reconcile all accounts (bank, FA, IC, AR, AP, etc.).

2. Adjust entries for accruals, prepayments, deprecia on, etc.

3. Prepare financial statements (income statement, balance sheet, cash flow statement).

4. Close temporary accounts (revenue, expense accounts).

5. Review financial results and prepare management reports.

Month End Close – Tips

1. Record incoming cash

2. Update Accounts Payable
3. Reconciliation
4. Review Petty Cash
5. Fixed Assets
6. Inventory
7. Review Statements
8. Check Revenues & Expenses
9. Review information before closing
10. Prepare for Next Month
Journal Entries

1. Purchase of Inventory on Credit

Debit: Inventory
Credit: Accounts Payable

2. Sale of Goods on Credit

Debit: Accounts Receivable

Credit: Sales Revenue

3. Payment Received from a Customer

Debit: Cash/Bank
Credit: Accounts Receivable

4. Payment Made to a Vendor

Debit: Accounts Payable

Credit: Cash/Bank

5. Recording Deprecia on Expense

Debit: Deprecia on Expense

Credit: Accumulated Deprecia on
6. Accrual of Rent Expense

Debit: Rent Expense

Credit: Accrued Rent Payable

7. Recogni on of Revenue for Services Provided

Debit: Accounts Receivable

Credit: Service Revenue

8. Payment of Salaries to Employees

Debit: Salaries Expense

Credit: Cash/Bank

9. Acquisi on of Fixed Assets

Debit: Fixed Assets (e.g., Machinery, Equipment)

Credit: Cash/Bank or Accounts Payable

10. Purchase of Office Supplies on Credit

Debit: Office Supplies

Credit: Accounts Payable
11. Issuance of Common Stock for Cash

Debit: Cash/Bank
Credit: Common Stock

12. Payment of Interest Expense on Loan

Debit: Interest Expense

Credit: Cash/Bank

13. Provision for Bad Debts

Debit: Bad Debt Expense

Credit: Allowance for Doub ul Accounts

14. Accrual of U li es Expense

Debit: U li es Expense
Credit: Accrued U li es Payable

15. Recogni on of Gain on Sale of Asset

Debit: Cash/Bank
Debit: Accumulated Deprecia on (if applicable)
Credit: Asset Sold (at original cost)
Credit: Gain on Sale of Asset
Chart of Accounts

A chart of accounts (COA) is a structured list of all the accounts used by a business to classify financial
transac ons.

It provides a systema c way to organize and categorize financial informa on, making it easier to track and
analyse the company's financial ac vi es.

Below is a typical chart of accounts structure, categorized by account type:

Asset Accounts
1. 1000-1999 - Current Assets
1010 - Cash on Hand
1020 - Cash in Bank
1030 - Pe y Cash
1100 - Accounts Receivable
1200 - Inventory
1300 - Prepaid Expenses
1400 - Other Current Assets
2. 2000-2999 - Non-current Assets
2010 - Property, Plant, and Equipment (PPE)
2020 - Accumulated Deprecia on
2030 - Intangible Assets
2040 - Investments
2100 - Other Non-current Assets

Liability Accounts
3. 3000-3999 - Current Liabili es
3010 - Accounts Payable
3020 - Accrued Expenses
3030 - Short-term Loans Payable
3100 - Other Current Liabili es
4. 4000-4999 - Non-current Liabili es
4010 - Long-term Loans Payable
4020 - Bonds Payable
4100 - Other Non-current Liabili es
Equity Accounts
5. 5000-5999 - Equity
5010 - Common Stock
5020 - Retained Earnings
5030 - Addi onal Paid-in Capital
5100 - Treasury Stock

Revenue Accounts
6. 6000-6999 - Revenue
6010 - Sales Revenue
6020 - Service Revenue
6100 - Other Opera ng Revenue

Expense Accounts
7. 7000-7999 - Opera ng Expenses
7010 - Cost of Goods Sold (COGS)
7020 - Salaries and Wages Expense
7030 - Rent Expense
7040 - U li es Expense
7100 - Marke ng and Adver sing Expense
7200 - Deprecia on Expense
7300 - Amor za on Expense
7400 - Interest Expense
7500 - Income Tax Expense
7900 - Other Opera ng Expenses
Other Accounts
8. 8000-8999 - Other Income and Expenses
8010 - Gain on Sale of Assets
8020 - Loss on Sale of Assets
8100 - Other Income
8900 - Other Expenses

Contra Accounts
9. 9000-9999 - Contra Accounts
9010 - Allowance for Doub ul Accounts
9020 - Accumulated Deprecia on
9100 - Deferred Revenue
9200 - Discount on Bonds Payable

Notes:
 Current vs. Non-current: Current accounts are expected to be se led within one year (e.g., Cash,
Accounts Receivable), while non-current accounts are long-term (e.g., Property, Plant, and
Equipment).
 Contra Accounts: These accounts are used to reduce the balance of a related account (e.g.,
Accumulated Deprecia on reduces the value of Property, Plant, and Equipment).
Trial Balance

A trial balance is a financial statement that lists all the ledger accounts and their respec ve balances at a
specific point in me.

It serves as the ini al step in the prepara on of financial statements like the balance sheet and income
statement.

Here’s how a trial balance typically looks and what it includes:

Trial Balance Format

Account Title Debit Amount ($) Credit Amount ($)

Cash on Hand XXXX -
Cash in Bank XXXX -
Pe y Cash XXXX -
Accounts Receivable XXXX -
Inventory XXXX -
Prepaid Expenses XXXX -
Property, Plant, Equipment XXXX -
Accumulated Deprecia on - XXXX
Accounts Payable - XXXX
Accrued Expenses - XXXX
Short-term Loans Payable - XXXX
Common Stock - XXXX
Retained Earnings XXXX -
Sales Revenue - XXXX
Cost of Goods Sold XXXX -
Salaries and Wages Expense XXXX -
Rent Expense XXXX -
U li es Expense XXXX -
Interest Expense XXXX -
Income Tax Expense XXXX -
Gain on Sale of Assets - XXXX
Loss on Sale of Assets XXXX -
Other Income - XXXX
Other Expenses XXXX -
Total XXXX XXXX
Understanding the Trial Balance

 Debit and Credit Columns: The trial balance has two columns, one for debit balances and one for
credit balances.
 Balancing: The total of the debit column should equal the total of the credit column. This ensures
that the accoun ng equa on (Assets = Liabili es + Equity) is balanced.
 Account Balances: Each account is listed with its balance, showing either a debit balance (posi ve)
or a credit balance (nega ve). For example, assets like Cash and Accounts Receivable typically have
debit balances, while liabili es like Accounts Payable have credit balances.
 Prepara on: The trial balance is prepared a er pos ng all transac ons to the ledger accounts. It
helps in detec ng errors such as pos ng mistakes, omission of entries, or incorrect balances.

Notes:
 Format Varia ons: Some trial balances may list debit balances on the le and credit balances on
the right.
 Adjustments: Before preparing financial statements, adjustments such as accruals, deferrals, and
correc ons are made to ensure accurate financial repor ng.
 Purpose: The trial balance is a crucial tool for accountants to verify the accuracy of ledger balances
before finalizing financial statements.
 Bookkeeping Accounting
The process of recording financial transactions The process of summarizing, analysing, and
systematically. reporting financial transactions.
To maintain accurate records of all financial To interpret, classify, analyse, report, and
transactions. summarize financial data.
Limited to recording and maintaining financial Broader scope including interpreting financial data,
transactions. preparing reports, and making decisions.
Recording sales, purchases, receipts, and Preparing financial statements, tax returns, and
payments. analysing financial data.
Basic knowledge of financial transactions and Advanced knowledge of accounting principles,
record-keeping. standards, and financial analysis.
Journals, ledgers, and bookkeeping software. Financial statements, accounting software, and
analytical tools.
Internal users like management and employees. Both internal users (management) and external
users (investors, creditors, regulatory agencies).
Does not involve decision making based on the Involves decision making based on financial
data recorded. analysis and reporting.
Not governed by specific standards or Governed by accounting standards and principles
regulations. (e.g., GAAP, IFRS).
Done daily to ensure all transactions are Typically done periodically (monthly, quarterly,
recorded. annually).
 General Ledger (GL) Record to Report (R2R)
End-to-end process of recording, validating, and
Central repository for financial transactions
reporting financial transactions
Focuses on capturing transaction details Encompasses the entire financial reporting process
Ensures accuracy and completeness of financial
Maintains a summary of accounts
data
Journals, charts of accounts, trial balance Journals, reconciliations, financial statements
Posting entries, balancing accounts Closing activities, financial analysis
Accountants, auditors Finance managers, analysts, auditors
General Ledger - Overview

Steps in General Ledger:

1. Journal Entry
2. Journal Review
3. Journal Approval
4. Journal Posting
5. Import Feeds
6. Reversals
7. Accruals
8. Reporting
9. Auto Allocations
10. Trial Balance
11. Calendar Periods
12. Multi-Currency
13. Chart of Accounts

Components of the General Ledger:

Chart of Accounts: A list of all accounts used by the Business, categorized by type (e.g., Cash, Accounts
Receivable, Revenue, Expenses).

Transac on Details: Date, Descrip on, Debit Amount, and Credit Amount for each transac on.

Account Balances: Ending Balances for each Account a er each transac on is posted.