Top 50 Journal Entry Interview Questions Asked in MNCs

1. What is a journal entry?

A journal entry is the accounting record used to capture a financial transaction by recording the affected accounts with corresponding debit and credit amounts.
The fundamental principle is double-entry accounting: every transaction has equal debit and credit effects.

2. What is the basic accounting equation?

The basic accounting equation is:

Assets = Liabilities + Shareholders' Equity

Journal entries must maintain this relationship by recording equal total debits and credits.

3. What are the traditional Golden Rules of Accounting?

The traditional classification consists of:

• 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.

These rules are commonly used to test a candidate's understanding of basic journalizing.

4. What is the journal entry for an owner investing $500,000 cash into a business?

Journal Entry:

The business receives cash, increasing its assets, while owner's equity also increases.

5. What is the journal entry when an owner withdraws goods for personal use?

For goods worth $10,000 withdrawn by the owner:

The research specifically highlights this as a test of whether candidates distinguish personal withdrawal of goods from a sale.

6. How do you record a credit sale?

For a credit sale of $60,000 before considering a trade discount:

Accounts Receivable Dr. $60,000
    Sales Revenue Cr. $60,000 Copy

The receivable represents the customer's obligation to pay, while sales revenue represents the income earned.

7. How is a trade discount treated in a journal entry?

A trade discount is not recorded separately in the books. The transaction is recorded at the net amount.
For a $60,000 sale subject to a 10% trade discount:

• Trade discount = $6,000
• Net sale = $54,000

Journal Entry:

8. What happens when a company purchases a fixed asset on credit?

For a $500,000 PPE purchase on credit:

The asset increases while the liability to the supplier also increases.

9. What is the difference between a debit and a credit?

A debit and credit are the two sides of a double-entry accounting transaction. Their effect depends on the type of account.
For example:

• Assets generally increase with debits.
• Liabilities generally increase with credits.
• Expenses generally increase with debits.
• Revenue generally increases with credits.

10. Why must total debits equal total credits?

Because double-entry accounting records the dual effect of every transaction. Equal debits and credits help maintain the accounting equation and provide the foundation for an accurate trial balance.

11. What is an accrued expense?

An accrued expense is an expense that has been incurred but has not yet been paid.
For example, if employees have earned salary in December but payment will be made in January:

Journal Entry:

12. What happens when accrued salary is paid in the following month?

When the salary payable is settled:

This removes the liability created in the previous period.

13. What is an accrued revenue?

Accrued revenue is income that has been earned but has not yet been billed or received.

Accrued Revenue Dr. XXX
    Service Revenue Cr. XXX Copy

The research uses consulting services performed before the invoice is issued as an example.

14. What is a prepaid expense?

A prepaid expense occurs when cash is paid before the related economic benefit is consumed.
For example, a company paying $12,000 for 12 months of insurance initially records:

15. How do you record the monthly adjustment for prepaid insurance?

If $12,000 covers 12 months, the monthly expense is $1,000.

16. What is deferred revenue?

Deferred revenue, also called unearned revenue, arises when a company receives payment before providing the related goods or services.
It is initially recorded as a liability, not revenue.

17. What is the journal entry for advance subscription revenue?

If a software company receives $24,000 for a two-year subscription:

As the service is provided, revenue is recognized over the relevant period.

18. How do you recognize deferred revenue each month?

For a $24,000 two-year subscription, the monthly revenue in the research example is $1,000.

19. Why are adjusting entries important?

Adjusting entries help recognize income and expenses in the appropriate accounting period under the accrual basis and matching principle.
They are particularly important at period-end because timing differences can otherwise distort reported income and liabilities.

20. Why can adjusting entries create control risks?

Adjusting entries may involve management estimates and judgment. The research notes that this makes period-end adjustments an area where controls are important, particularly to reduce the risk of income manipulation.

21. When should a purchase be capitalized instead of expensed?

The research explains that purchases providing economic benefits beyond the current accounting period may be capitalized and depreciated over their useful lives, while routine repairs and items consumed within the period are generally expensed.

22. How do you account for shipping and installation costs of machinery?

Suppose machinery costs $100,000, shipping is $5,000, and installation is $10,000.
Total capitalized cost: $100,000 + $5,000 + $10,000 = $115,000

Journal Entry:

The research states that costs necessary to bring the asset to its intended location and condition for use are included in the capitalized cost.

23. What is the journal entry for depreciation?

The standard entry is:

24. What is accumulated depreciation?

Accumulated depreciation is a contra-asset account that offsets the carrying amount of the related fixed asset.
It normally carries a credit balance and allows financial statements to present both the asset's historical cost and accumulated depreciation.

25. Why don't you normally credit the fixed asset account directly for depreciation?

The research explains that accumulated depreciation is used as the contra-asset account. This preserves the original historical cost of the asset while separately showing the depreciation accumulated to date.

26. What happens to the income statement when inventory increases by $10?

The purchase of inventory does not immediately create an income-statement expense in the scenario described by the research. Inventory is initially recorded as an asset.
The income statement is affected when the inventory is sold and recognized as Cost of Goods Sold or when an applicable write-down occurs.

27. How do you record an inventory write-down?

When inventory requires a write-down:

The research connects this with the Lower of Cost or Net Realizable Value principle.

28. Is an inventory write-down a cash expense?

No. The research describes the write-down as a non-cash expense. It reduces net income but does not itself represent a cash outflow.

29. What are the five steps of revenue recognition under IFRS 15?

The five-step model is:

1. Identify the contract with the customer.
2. Identify the performance obligations.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations.
5. Recognize revenue when or as each performance obligation is satisfied.

30. What is a contract asset?

A contract asset represents a right to consideration that is conditional on something other than merely the passage of time.
The research distinguishes it from a trade receivable, which represents an unconditional right to receive consideration.

31. What is the difference between a contract asset and a trade receivable?

32. How is a bundled contract allocated under IFRS 15?

The transaction price is allocated to separate performance obligations based on their relative standalone selling prices.
In the research example, a $2,400 contract includes a phone with a $600 standalone price and services with a $2,400 standalone price. The total standalone value is $3,000, so the phone receives 20% of the transaction price and services receive 80%.

33. What is the journal entry when a contract asset is recognized?

In the research's telecommunications example, delivery of the handset creates $480 of revenue before the company has an unconditional right to invoice that amount.

Journal Entry:

34. How does a contract asset become part of a trade receivable?

In the research example, when the customer is billed $100, the company recognizes $80 of service revenue and transfers $20 from the contract asset:

35. What is a significant financing component under IFRS 15?

A significant financing component exists when the timing of payments provides a significant financing benefit related to the transfer of goods or services.
The research notes that consideration may need to be adjusted for the time value of money, with the financing effect recognized appropriately over time.

36. What is the initial journal entry for a lease under IFRS 16?

At lease commencement, the lessee recognizes a Right-of-Use asset and a Lease Liability.

Journal Entry:

37. How is the lease liability initially measured?

The research states that the lease liability is measured at the present value of future lease payments, discounted using the appropriate rate specified under the lease accounting framework.

38. What happens to the Right-of-Use asset after initial recognition?

The ROU asset is subsequently amortized, generally over the relevant lease term, while the lease liability is accounted for using the effective interest method.

39. What is the journal entry for a periodic lease payment under the framework described?

The research presents the subsequent accounting as involving:

Debit: Amortization Expense
Debit: Interest Expense
Debit: Lease Liability
    Credit: Cash
    Credit: Right-of-Use Asset or accumulated amortization Copy

40. How does lease accounting affect financial statements?

Lease accounting can change the presentation of assets and liabilities and can affect metrics such as EBITDA and debt-to-equity ratios. The research specifically identifies these financial-statement and KPI implications as areas interviewers may test.

41. What is Expected Credit Loss under IFRS 9?

Expected Credit Loss, or ECL, is a forward-looking loss allowance framework for relevant financial assets.
The research describes a three-stage approach:

• Stage 1: 12-month ECL
• Stage 2: Lifetime ECL after a significant increase in credit risk
• Stage 3: Lifetime ECL when the asset becomes credit-impaired

42. What is the journal entry for recognizing Expected Credit Loss?

Journal Entry:

The allowance acts as a contra-asset.

43. What is an intercompany elimination?

In consolidated financial statements, transactions and balances between entities within the same group are eliminated so the group is presented as a single economic entity.
The research identifies intercompany transactions, balances, income and expenses as areas requiring elimination.

44. How do you eliminate unrealized intercompany profit in inventory?

When one group company sells inventory to another group company and that inventory remains unsold to an external party at reporting date, the internal profit is unrealized from the group's perspective.
The research presents the consolidation entry as:

The purpose is to remove the intercompany revenue and reduce inventory to the appropriate historical cost for the consolidated group.

45. What is the Reverse Charge Mechanism?

Under the Reverse Charge Mechanism, the recipient rather than the supplier is responsible for paying the applicable tax to the government for specified transactions.
The research identifies RCM as an important statutory-compliance topic for accounting interviews, particularly in jurisdictions such as India.

46. How do you record an RCM transaction?

For the research example involving $50,000 of legal services subject to 18% RCM:
Expense and tax recognition:

47. How is an RCM tax liability discharged?

The research states that the RCM liability in its example is discharged through the electronic cash ledger.

Journal Entry:

48. How do you rectify an accounting error?

The treatment depends on the type of error and when it is discovered.
The research identifies:

• Errors of principle
• Errors of omission
• Errors of commission
• Compensating errors

For example, if a $5,000 machinery purchase was incorrectly recorded as Repairs Expense, the correction is:

Machinery Dr. $5,000
    Repairs Cr. $5,000 Copy

49. What is a suspense account and when is it used?

A suspense account can temporarily hold an unexplained difference when a one-sided error causes the trial balance not to agree.
For example, if a Purchase Book is undercast by $1,000 after the trial balance has been extracted, the rectification described in the research is:

Once the underlying errors are identified and corrected, the suspense account should be cleared.

50. What are high-risk journal entries that auditors may investigate?

For audit, SOX, or internal-control roles, interviewers may ask candidates to identify characteristics that can make journal entries higher risk.
The supplied research identifies examples including:

• Entries posted to unusual or seldom-used accounts
• Entries posted by individuals who do not normally have journal-posting responsibilities
• Period-end or post-closing adjustments
• Large round-number entries
• Entries posted outside normal business hours
• Unusual account combinations

These indicators are discussed in the context of journal-entry testing and management-override risk.