Question 1

In Indian income tax, what is the meaning of TDS (Tax Deducted at Source) and how is it generally charged on payments made to taxpayers?

Accepted Answer

Introduction / Context: TDS, or Tax Deducted at Source, is a very common concept in Indian income tax and is frequently asked in accounting and finance interviews. Understanding what TDS means and how it is charged helps candidates explain how tax is collected in advance by the government and how cash flows are affected for both payer and payee. Given Data / Assumptions: - The question refers to Indian income tax law in a general interview context. - TDS is applied on eligible payments such as salary, interest, commission, contract payments, rent and professional fees, subject to limits and rates prescribed by law. - The focus is on the meaning of TDS and the basic way in which it is charged, not on exact sections or rates. Concept / Approach: TDS stands for Tax Deducted at Source. The core idea is that instead of waiting for the recipient of income to pay tax later, a portion of the tax is deducted by the payer at the time of making the payment. The payer then deposits this amount to the government under the recipient's Permanent Account Number. This mechanism improves tax compliance, gives the government earlier access to revenue and creates a trail of high value or regular payments. Step-by-Step Solution: Step 1: Identify that TDS is an income tax concept linked to the Income Tax Act in India. Step 2: Recall that TDS expands to Tax Deducted at Source and is designed to collect tax at the point where income is generated. Step 3: Understand that the deduction is made by the payer of income. Examples include employers deducting TDS from salary or companies deducting TDS from contractor payments. Step 4: The deducted amount is deposited with the government and appears in the recipient's Form 26AS or similar tax credit statement. Step 5: At the time of filing the return, the recipient adjusts total tax liability with TDS already paid on their behalf. Verification / Alternative check: Whenever you see TDS mentioned, you should be able to replace it mentally with the phrase Tax Deducted at Source. If a description talks about the payer cutting tax from payments and depositing it to the government before the receiver gets the net amount, that description is aligned with the correct meaning of TDS. Why Other Options Are Wrong: Option B is wrong because Total Direct Subsidy is not a standard tax term and does not describe a deduction at payment stage. Option C is wrong because it talks about tax deposited separately by the taxpayer, which is more like self assessment tax or advance tax, not TDS. Option D is wrong because Transferable Deposit Scheme is not a recognised name for TDS and does not capture the core concept of deduction at the source of income. Common Pitfalls: Candidates sometimes confuse TDS with advance tax or self assessment tax. In TDS, the obligation to deduct and deposit tax is on the payer, while in advance or self assessment tax the taxpayer pays directly. Another mistake is to think that TDS is an extra tax. In reality it is only a mode of collection and is adjusted against final tax liability, with any excess leading to a refund. Also, some learners think TDS applies only on salary, but it covers many categories of payments subject to limits and conditions. Final Answer: Correct option: Tax Deducted at Source, where tax is deducted from eligible payments at prescribed rates and deposited with the government.

Question 2

In accounts payable (AP), which option best describes the complete end to end AP process from purchase requisition to payment and reconciliation?

Accepted Answer

Introduction / Context: The end to end Accounts Payable process describes how an organisation controls its purchases and vendor payments. It is a favourite interview topic because it tests both conceptual understanding of internal controls and familiarity with practical workflow steps such as purchase orders, goods receipts and invoice processing. Given Data / Assumptions: - We are talking about a standard corporate AP cycle for goods or services purchased from vendors. - The process normally involves documents such as purchase requisition, purchase order, goods receipt note and vendor invoice. - There is an approval workflow and finally a payment run followed by accounting reconciliation. Concept / Approach: A robust AP process ensures that the company pays only for goods or services that were actually ordered, received and approved, and that all payments are recorded correctly in the books. The classic description is a sequence beginning with internal demand, then formal ordering, receiving, matching, approval, payment and reconciliation. The most important control is the three way match between purchase order, goods receipt and invoice before release of payment. Step-by-Step Solution: Step 1: A department raises a purchase requisition to request goods or services and obtain internal approval. Step 2: Procurement creates a purchase order and sends it to the vendor, confirming quantity, price and terms. Step 3: The vendor delivers goods or services, and the company records a goods receipt or service entry. Step 4: The vendor submits an invoice. AP performs a three way match between the purchase order, goods receipt and invoice. Step 5: After resolving any mismatches and obtaining required approvals, AP schedules the invoice in the payment run. Step 6: Payment is made by cheque, electronic transfer or other mode and the vendor account is updated. Step 7: Finally, bank accounts and vendor balances are reconciled to ensure accurate financial reporting. Verification / Alternative check: If a description mentions purchase requisition, purchase order, goods receipt, invoice verification, approval, payment run and reconciliation in a logical chain, it is describing the end to end AP process. Any description that speaks only about sales or only about bank reconciliation without vendor invoices is not correct for this question. Why Other Options Are Wrong: Option B relates to Accounts Receivable, where the company sells and collects from customers, not to AP. Option C describes only bank reconciliation, which is one control activity and not the entire AP cycle. Option D suggests making cash payments without purchase orders or approvals, which goes against standard AP controls and therefore cannot be the correct description of the proper process. Common Pitfalls: Candidates sometimes confuse AP with AR and talk about customer collections instead of vendor payments. Another common mistake is to skip the three way match and jump directly from invoice to payment, ignoring control steps. It is also easy to forget the final reconciliation stage, but interviews often probe whether you understand that the cycle includes both operational processing and financial control at period end. Final Answer: Correct option: Raising a purchase requisition, creating a purchase order, receiving goods or services, matching invoice with PO and receipt, approving, paying the vendor and reconciling accounts.

Question 3

In which year was the State Bank of India (SBI) formed by nationalising and renaming the former Imperial Bank of India?

Accepted Answer

Introduction / Context: The State Bank of India is the largest public sector bank in India and a key part of many banking and general awareness syllabi. Interview and exam questions often test whether candidates know when SBI was created through nationalisation of the Imperial Bank of India. Given Data / Assumptions: - The question is about the year in which SBI came into existence through nationalisation and renaming of the Imperial Bank of India. - Several years are given as options, many of which are significant for other banking events, such as the nationalisation of major commercial banks in 1969 and 1980. - We need to identify the historically correct year for the creation of SBI. Concept / Approach: The Imperial Bank of India was a major commercial bank during the British period. After independence, the government wanted a strong state controlled bank to support development. In 1955, the Reserve Bank of India acquired a controlling interest in the Imperial Bank of India, and the bank was renamed the State Bank of India. Later, in 1956, the State Bank of India Act came fully into force and associate banks were added over time. Remembering this timeline helps distinguish SBI's creation from later nationalisation waves. Step-by-Step Solution: Step 1: Recall that many private banks were nationalised in two major waves, in 1969 and 1980. Step 2: Note that SBI is different because it originated from the Imperial Bank of India and involved RBI acquiring a controlling stake earlier. Step 3: Connect this event to the year 1955, when Imperial Bank was taken over and renamed State Bank of India. Step 4: Therefore, among the given options, 1955 is the correct year. Verification / Alternative check: You can cross check by matching other options with known events. The year 1969 is famous for nationalisation of 14 major commercial banks, not for the creation of SBI. The year 1980 is for nationalisation of another group of banks. The year 1995 does not match any major nationalisation milestone for SBI. This makes 1955 stand out as the correct choice. Why Other Options Are Wrong: Option A, 1995, is far too late and does not match the historical timeline of SBI. Option C, 1980, refers to the second phase of bank nationalisation, which did not create SBI. Option D, 1969, refers to the first phase of large scale bank nationalisation but again relates to other banks, not to the formation of SBI from the Imperial Bank of India. Common Pitfalls: A common confusion is to assume that SBI was created in 1969 along with other nationalised banks, because that year is very famous in banking history. Another mistake is to confuse the year of the SBI Act coming fully into effect with the specific year when the Imperial Bank was taken over and renamed. For exam and interview purposes, 1955 is the key year to remember for the nationalisation and renaming event that gave birth to the State Bank of India. Final Answer: Correct option: 1955.

Question 4

In financial accounting, which types of accounts appear on a post closing trial balance prepared after all temporary accounts are closed?

Accepted Answer

Introduction / Context: A post closing trial balance is a standard step in the accounting cycle. It is prepared after closing entries have been passed at the end of an accounting period. Interviewers often ask which accounts appear in this statement to test whether candidates understand the difference between temporary and permanent accounts. Given Data / Assumptions: - Closing entries have been made to transfer balances of all revenue, expense and drawing accounts to capital or retained earnings. - The post closing trial balance is prepared after these closing entries are posted. - The purpose is to ensure that debits and credits still balance and that only appropriate accounts carry forward to the next period. Concept / Approach: Accounts are grouped as temporary (nominal) and permanent (real). Temporary accounts include revenues, expenses and drawings, which accumulate for a specific period and are then closed to equity. Permanent accounts include assets, liabilities and owner's capital, which carry forward to the next accounting period. A post closing trial balance will therefore contain only the permanent accounts with non zero balances, confirming that all temporary accounts have been reset to zero. Step-by-Step Solution: Step 1: Identify temporary accounts: revenue, expense and drawing accounts used to record activity during the period. Step 2: Identify permanent accounts: assets such as cash, receivables and equipment, liabilities such as payables and loans, and equity accounts such as capital or retained earnings. Step 3: Recall that at period end, closing entries transfer the balances of all temporary accounts into equity so that they start next period at zero. Step 4: Understand that after closing, temporary accounts have zero balances and therefore do not appear in the post closing trial balance. Step 5: Conclude that only permanent balance sheet accounts with remaining balances appear on the post closing trial balance. Verification / Alternative check: If you look at a sample post closing trial balance, you will see accounts like Cash, Accounts Receivable, Inventory, Fixed Assets, Accumulated Depreciation, Accounts Payable, Long Term Debt and Capital. There will be no Sales Revenue, Rent Expense or Salaries Expense lines because those accounts have been closed. This visual check supports the conceptual rule. Why Other Options Are Wrong: Option B is wrong because revenue and expense accounts are temporary and should have zero balances after closing. Option C is wrong because mixing temporary with permanent accounts would defeat the purpose of the post closing trial balance. Option D is wrong because memorandum or budget accounts are not part of the formal general ledger balances that are carried forward and usually do not appear in trial balances. Common Pitfalls: Students sometimes confuse the unadjusted trial balance, the adjusted trial balance and the post closing trial balance. The unadjusted and adjusted versions can show revenue and expense balances, but the post closing one should not. Another common misunderstanding is to think that income summary appears here. In fact, income summary is itself a temporary clearing account that is closed to capital and usually has zero balance by the time the post closing trial balance is prepared. Final Answer: Correct option: Only permanent balance sheet accounts such as assets, liabilities and equity.

Question 5

The total value of all final goods and services produced within a country during a year, minus depreciation of capital assets, is called which macroeconomic aggregate?

Accepted Answer

Introduction / Context: Macroeconomics uses several related measures of output and income such as Gross Domestic Product, Net Domestic Product, Gross National Product and Net National Product. Exams and interviews often test whether candidates can distinguish between gross and net measures and between domestic and national concepts. This question focuses on the meaning of Net Domestic Product. Given Data / Assumptions: - We are given that the measure includes the total value of goods and services produced within a country in one year. - We are told that depreciation, which is also called consumption of fixed capital, has been subtracted from that total. - There is no reference to income earned by residents abroad or by foreigners inside the country beyond what is included in domestic production. Concept / Approach: Gross Domestic Product is the value of all final goods and services produced within a country's borders over a period without adjusting for depreciation. Net Domestic Product adjusts this by subtracting depreciation of capital goods, which represents wear and tear or using up of machines, buildings and equipment. The word Domestic indicates that the production is within the territory of the country, regardless of who owns the factors of production. The word Net indicates that depreciation has been deducted from the gross figure. Step-by-Step Solution: Step 1: Identify that the phrase produced in a country points to a domestic concept rather than a national concept based on residence. Step 2: Note that depreciation of capital assets has been subtracted from the total, which changes a gross measure to a net measure. Step 3: Combine these two clues. A domestic measure minus depreciation is called Net Domestic Product. Step 4: Therefore the correct label for the described aggregate is Net Domestic Product. Verification / Alternative check: You can check the other common aggregates. Gross Domestic Product is before subtracting depreciation, so it does not match the description. Net National Product is based on the income of residents irrespective of location, so it is a national, not a domestic, concept. Gross National Income is again a national and gross measure. Only Net Domestic Product matches both domestic and net conditions together. Why Other Options Are Wrong: Option B, Gross National Income, relates to income earned by residents and is a national, not purely domestic, concept and does not subtract depreciation. Option C, Gross Domestic Product, includes domestic output but does not deduct depreciation. Option D, Net National Product, is net of depreciation but again is based on national income rather than domestic production. None of these match the exact wording of the question. Common Pitfalls: Many learners focus only on the words gross or net and ignore the domestic versus national distinction. Others remember only GDP and forget that depreciation adjustment changes the name of the aggregate. In exams, similar looking choices can be confusing, so it is useful to train yourself to break the phrase into two parts: domestic versus national, and gross versus net. Domestic plus net directly suggests Net Domestic Product. Final Answer: Correct option: Net Domestic Product.

Question 6

In accounts payable, what is a Non PO invoice and how is it generally used in organisations?

Accepted Answer

Introduction / Context: Invoice processing is a core part of the accounts payable function. Interviewers often ask candidates to explain the difference between PO invoices and Non PO invoices. This question checks whether you understand how Non PO invoices fit into the overall control framework for vendor payments. Given Data / Assumptions: - The focus is on vendor invoices received by an organisation for goods or services. - Some invoices are clearly linked to purchase orders while others are not. - The question asks specifically about Non PO invoices, which means invoices without a purchase order reference. Concept / Approach: A PO invoice is tied to a purchase order and often to a goods receipt or service entry, enabling a three way match. A Non PO invoice does not have such a purchase order reference. It is commonly used for recurring or low risk expenses such as rent, utilities, telephone bills, subscriptions, or some professional services where a formal purchase order may not have been raised. Because there is no PO, Non PO invoices rely more on approval workflows and coding controls before posting and payment. Step-by-Step Solution: Step 1: Recognise that PO stands for purchase order and that a PO invoice is matched to an existing order document. Step 2: Understand that a Non PO invoice, by definition, is an invoice processed without a matching purchase order. Step 3: Recall common examples such as office rent, monthly electricity bills, internet charges or audit fees, where companies often process invoices directly as Non PO items. Step 4: Note that for such invoices, AP teams rely on cost centre, general ledger coding and approval hierarchies to control spending before payment. Verification / Alternative check: If an invoice can be matched against a PO and goods receipt, it is not a Non PO invoice. If it arrives with no PO reference and is posted based on approval by responsible managers, it falls into the Non PO category. This simple decision rule helps you classify invoices correctly. Why Other Options Are Wrong: Option A is the exact opposite of the definition of a Non PO invoice. Option C describes the status of an invoice that has been paid, which has nothing to do with whether it is PO or Non PO. Option D suggests an internal invoice between departments, which relates more to internal cost allocation than to vendor payable invoices. Common Pitfalls: Sometimes learners think Non PO invoices are informal or not controlled, but in a good AP process they are still subject to strong approval checks. Another mistake is to assume that all service invoices are Non PO. In many organisations, large service contracts do have purchase orders and are processed as PO invoices. The key is the presence or absence of a purchase order reference, not whether the item is a good or a service. Final Answer: Correct option: A vendor invoice that does not reference a purchase order and is usually used for expenses such as rent, utilities and professional services.

Question 7

In international and domestic banking, what is a wire payment (wire transfer) and how is payment typically made and received through a wire?

Accepted Answer

Introduction / Context: Wire payments, also called wire transfers, are widely used for high value or time sensitive domestic and international payments. Finance and accounts payable professionals must understand how wire payments work, who initiates them and how the funds move between banks. Given Data / Assumptions: - The question refers to wire payments in a generic banking and corporate finance context. - We are concerned with the meaning of a wire transfer and the basic process for making and receiving such payments. - Details like exact message formats or cut off times vary by country and bank, but the high level idea is common. Concept / Approach: A wire transfer is an electronic method of sending money from one bank account to another using secure banking networks. In an international context, systems like SWIFT are used to send payment messages between banks. In some countries, domestic systems such as Fedwire or other real time gross settlement systems handle wires. The payer instructs their bank to send a specified amount to the beneficiary's bank, quoting account details, bank identifiers and sometimes reference information for remittance advice. Step-by-Step Solution: Step 1: Recognise that a wire payment is not a physical wire or an acronym but a name for an electronic funds transfer between banks. Step 2: To send a wire, the payer provides details such as beneficiary name, account number or IBAN, bank name, branch, and bank identifier code. Step 3: The payer's bank debits the payer's account and sends an electronic message through the relevant payment network to the beneficiary's bank. Step 4: The beneficiary's bank credits the beneficiary's account once it receives and validates the instructions and funds. Step 5: Both parties may receive confirmations or statements showing the debit and credit for reconciliation. Verification / Alternative check: If the process involves bank to bank electronic messaging and account to account transfer with no cash or cheque physically moving, it is consistent with the concept of a wire transfer. If the description focuses on paper instruments or petty cash, it does not fit. Why Other Options Are Wrong: Option B describes a cheque payment, which uses a paper instrument presented for clearing, not an immediate electronic bank to bank transfer. Option C focuses on cash payments over the counter, which may later be credited but is not what finance professionals usually refer to as a wire. Option D is about petty cash reimbursements, typically handled within a company, not through interbank wire networks. Common Pitfalls: Some learners assume that wire is an acronym and try to expand it, but in practical banking usage it is simply a term for an electronic transfer. Another common confusion is between wire transfers and automated clearing house or batch transfers, which may be slower and lower cost. For interviews, emphasise that wires are secure, electronic, typically faster and often used for larger or urgent payments domestically and internationally. Final Answer: Correct option: An electronic funds transfer between bank accounts processed through banking networks such as SWIFT or Fedwire.

Question 8

In capital markets, what is a Demat account and what does it hold for an investor?

Accepted Answer

Introduction / Context: With the shift from paper share certificates to electronic records, Demat accounts have become central to investing in shares, bonds and many other securities. Interviews for finance and banking roles frequently include questions on what a Demat account is and why it is important. Given Data / Assumptions: - The question is set in the context of modern securities markets where most holdings are in electronic form. - Depositories and depository participants provide infrastructure for Demat accounts. - The focus is on what a Demat account holds and not on trading or bank accounts. Concept / Approach: The word Demat comes from dematerialised. A Demat account is an account opened with a depository participant, such as a bank or broker, that allows an investor to hold securities in electronic form instead of physical certificates. It works in a manner similar to a bank account, but instead of money balances it shows quantities of shares, debentures, mutual fund units and other eligible instruments. Demat accounts make transfers and settlements faster, safer and easier to manage. Step-by-Step Solution: Step 1: Recognise that physical share certificates were historically used but created risks of loss, theft and delays. Step 2: Understand that dematerialisation is the process of converting physical certificates into electronic holdings maintained by a depository. Step 3: A Demat account is the electronic ledger in the investor's name with a depository participant that records these holdings. Step 4: When an investor buys or sells securities through a trading account, the credit or debit of securities happens through the linked Demat account. Step 5: Confirm that the key feature is that the account holds securities in dematerialised electronic form. Verification / Alternative check: Any description that emphasises electronic holding of securities with a depository participant is aligned with the correct meaning. If a description focuses only on deposits of money or on physical certificates, it is not referring to a Demat account in the present sense. Why Other Options Are Wrong: Option A is outdated because modern Demat accounts do not hold physical certificates; dematerialisation removes the paper element. Option B is about fixed and recurring deposits, which are bank products, not Demat holdings. Option D invents the idea of demat interest and still talks like a bank savings account, which is not accurate for securities holdings. Common Pitfalls: Sometimes candidates confuse a Demat account with a trading account or a normal bank account. The trading account is used for placing buy and sell orders, while the Demat account is the storehouse of securities. Another frequent confusion is to think that Demat refers only to shares, but many other instruments can also be held in electronic form. Emphasising that a Demat account is an electronic repository of securities with a depository participant will keep your explanation clear. Final Answer: Correct option: An account with a depository participant that holds securities in dematerialised electronic form.

Question 9

In basic banking and accounting practice, what is meant by BRS and what is its purpose?

Accepted Answer

Introduction / Context: BRS is a commonly used abbreviation in accounting and banking. It stands for Bank Reconciliation Statement. Interviewers often ask this to check whether candidates understand why businesses need to reconcile book records with bank statements and how this control works in practice. Given Data / Assumptions: - The question comes from an accounting and finance interview context. - The entity maintains a cash book or bank ledger in its own records. - Banks send periodic statements of the same bank account, which may differ from the book balance due to timing and other reasons. Concept / Approach: A Bank Reconciliation Statement compares the balance as per the cash book with the balance as per the bank statement on a given date and explains the differences. Differences arise due to timing (for example cheques issued but not yet presented, or deposits in transit), bank charges, interest, direct debits or credits and possible errors. Preparing a BRS ensures accuracy of the cash and bank balances and helps detect fraud or mistakes early. Step-by-Step Solution: Step 1: Recognise that BRS is standard shorthand for Bank Reconciliation Statement. Step 2: Understand that the organisation keeps its own bank ledger while the bank maintains its statement of the account. Step 3: On a particular date, compare the two balances and identify items that cause them to differ, such as uncleared cheques or direct bank charges. Step 4: Prepare a statement listing these reconciling items and show how adjusting for them leads from one balance to the other. Step 5: Use the reconciliation to update the cash book for items like bank charges, interest and direct credits that were not previously recorded. Verification / Alternative check: If an explanation of BRS talks about reconciling the book balance with the bank statement balance and listing reconciling items, it is correct. If it talks only about budgets, rates or asset valuations, it is describing something else. Why Other Options Are Wrong: Option A refers to a Budget Review Summary, which is a management reporting tool, not a reconciliation with bank statements. Option C is about revaluing assets and has nothing to do with matching bank balances. Option D is a rate sheet and does not reconcile any balances. Common Pitfalls: Candidates sometimes think that as long as the bank statement is available, there is no need to reconcile. In reality, the books must still be updated for bank charges, interest and direct entries. Another mistake is to see BRS as a one time exercise. Good practice is to prepare it regularly, typically monthly, to keep cash records accurate and to detect errors or unauthorised transactions promptly. Final Answer: Correct option: Bank Reconciliation Statement used to reconcile bank statement balance with the cash book balance.

Question 10

In credit and collections work, after how much time without payment is an accounts receivable (A/R) balance typically considered delinquent for standard reporting purposes?

Accepted Answer

Introduction / Context: Ageing of accounts receivable is a key concept in credit control and collections. Businesses classify unpaid invoices into age buckets such as current, 30 days, 60 days, 90 days and more than 90 days. Interviewers often ask when an account is considered delinquent to test familiarity with standard credit practices. Given Data / Assumptions: - The question refers to a typical commercial environment with standard credit terms, often 30 days from invoice date. - Delinquent here means significantly overdue and in need of stronger collection efforts, not just a few days late. - Exact definitions can vary by company and industry, but 90 days is a widely used threshold in many policies and reports. Concept / Approach: Most companies treat invoices as current until the due date. Once past due, they may classify them into ageing buckets. Many organisations consider accounts that are more than 90 days past due as seriously delinquent or doubtful. This does not mean that earlier late payments are ignored, but the 90 day point often triggers escalated collection steps and higher provisioning for bad debts in financial reporting. Step-by-Step Solution: Step 1: Recall that normal credit terms are around 30 days, so an invoice unpaid at 30 days is simply past due. Step 2: Companies then monitor buckets such as 31 to 60 days, 61 to 90 days and more than 90 days. Step 3: Many credit policies classify accounts in the more than 90 days bucket as delinquent or high risk, leading to stronger collection and possible suspension of further credit. Step 4: Therefore, among the options, 90 days without payment is the most appropriate standard threshold for a delinquent balance. Verification / Alternative check: You can cross check by thinking about bad debt provisioning. Financial statements often pay special attention to receivables that are overdue for more than 90 days, and auditors frequently focus on this group. This supports the idea that 90 days is a widely recognised delinquency mark, even though internal details vary. Why Other Options Are Wrong: Option A, 15 days, is usually too short, as many customers pay close to due dates and minor administrative delays are common. Option B, 30 days, is often just the end of normal credit terms, not yet a severe delinquency classification. Option D, 365 days, would be far too late and most such accounts would be treated as bad debts long before that time. Common Pitfalls: Some candidates think there is a single legal definition of delinquency for all businesses, which is not correct. Policies can differ, but for general interview purposes using 90 days as the point at which an account is viewed as seriously delinquent is acceptable. Another mistake is to confuse an ageing bucket label with actual legal default or write off, which are policy and contract specific decisions. Final Answer: Correct option: After 90 days with no payment activity on the outstanding balance.

Question 11

In basic journal entry terms, what is the correct accounting entry when 75.00 dollars worth of supplies are purchased on account from a supplier?

Accepted Answer

Introduction / Context: Recording routine journal entries correctly is a fundamental accounting skill. This question focuses on how to record the purchase of supplies on account, meaning on credit, which introduces both an asset and a liability without any immediate cash movement. Given Data / Assumptions: - Supplies worth 75 dollars are purchased from a supplier. - The phrase on account indicates that the company has not yet paid cash and instead owes the supplier. - Supplies are initially treated as an asset that will be used in operations later, not as an immediate expense at the time of purchase under a simple periodic system. Concept / Approach: When supplies are purchased on credit, the Supplies account increases, showing that the company now has more materials on hand. This is a debit entry to Supplies. Because payment has not yet been made, a liability is created in Accounts Payable. This is a credit entry. The total debits and credits must both equal 75 dollars, keeping the accounting equation in balance. Step-by-Step Solution: Step 1: Identify the accounts involved. The company receives supplies, so the Supplies asset increases. It also incurs a liability to the supplier, so Accounts Payable increases. Step 2: Apply the rule that increases in asset accounts are recorded as debits. Therefore, Supplies must be debited for 75. Step 3: Apply the rule that increases in liability accounts are recorded as credits. Therefore, Accounts Payable must be credited for 75. Step 4: Write the journal entry as Debit Supplies 75; Credit Accounts Payable 75. Verification / Alternative check: If you later pay the supplier, you would Debit Accounts Payable and Credit Cash, which clears the liability and reduces cash. The original entry must therefore have credited Accounts Payable and not debited it, otherwise the later payment entry would not make sense. This cross check confirms the sign of the entries. Why Other Options Are Wrong: Option B is reversed and would wrongly reduce the liability and record an expense instead of recognising an asset. Option C assumes cash was paid, which contradicts the words on account. Option D records a revenue, which is not relevant when you are buying supplies, and also incorrectly increases cash instead of creating a liability. Common Pitfalls: Students often confuse purchases on account with payments in cash. Another common error is to expense supplies immediately even when the policy is to treat them as an asset until used. Being clear about whether the transaction affects cash and whether it creates a future obligation is crucial in journal entry questions. Practising such problems helps avoid sign reversals and account selection mistakes. Final Answer: Correct option: Debit Supplies 75; Credit Accounts Payable 75.

Question 12

In Indian export oriented information technology units, what does STPI stand for and why is STPI knowledge useful in Accounts Payable processing?

Accepted Answer

Introduction / Context: STPI is a common term in Indian information technology and business process outsourcing companies. Accounts Payable teams that process vendor and service provider invoices for such units often need to understand STPI related rules to code taxes correctly and support compliance. Given Data / Assumptions: - The question is from an accounting and finance interview and refers to STPI in an Accounts Payable context. - STPI is an acronym associated with export oriented software and information technology services in India. - Knowledge of STPI can affect how invoices, taxes and benefits are treated in the books. Concept / Approach: STPI stands for Software Technology Parks of India, an organisation and scheme aimed at promoting software exports. Units registered under STPI can enjoy certain benefits, such as duty free import of hardware and specific tax advantages subject to conditions. For Accounts Payable, this means that invoices related to STPI units or projects may require special treatment in terms of tax codes, documentation such as Softex forms, and reporting to authorities. Step-by-Step Solution: Step 1: Expand STPI correctly as Software Technology Parks of India. Step 2: Understand that STPI is linked to export oriented software development and services and that registered units operate under specific regulatory frameworks. Step 3: Recognise that when AP processes invoices for expenses of an STPI unit, tax codes for goods and services tax or customs and documentation requirements may differ from those of domestic non export units. Step 4: Knowledge of STPI rules helps AP staff ensure that invoices are coded to correct cost centres, locations and tax categories so that the company can claim eligible benefits and remain compliant. Verification / Alternative check: If an explanation of STPI mentions software technology parks, export promotion and regulatory benefits for technology companies, it matches the correct meaning. If it refers only to generic tax payment interfaces or petty traders, it is not the same concept and will not help in AP for technology companies. Why Other Options Are Wrong: Option A invents a phrase Small Traders and Producers of India, which is not the established expansion of STPI and has no special relevance to AP for technology exporters. Option C refers to a State Tax Payment Interface, which is not a recognised name for STPI. Option D links STPI to sales tax processing in retail, which again does not capture the export oriented software context of Software Technology Parks of India. Common Pitfalls: One mistake is to memorise only the expansion of STPI but not its practical impact. In interviews, it is valuable to mention how STPI status influences invoice processing, documentation and tax coding. Another pitfall is to confuse STPI with SEZ or other schemes. While there are similarities, they have different governing laws and procedures, so AP staff must pay attention to the specific registration and documentation for each unit. Final Answer: Correct option: Software Technology Parks of India, important in Accounts Payable for handling invoices of STPI units, export benefits and related compliance.

Question 13

Which Indian bank acquired the payments wallet Freecharge from Snapdeal in an all cash deal worth several hundred crore rupees?

Accepted Answer

Introduction / Context: Questions about mergers and acquisitions in the financial sector are common in banking and finance interviews. Freecharge was an important digital wallet player in India and its acquisition attracted attention in the fintech and banking space. Given Data / Assumptions: - The question states that a bank acquired the payments wallet Freecharge from its then owner in an all cash transaction valued in the range of a few hundred crore rupees. - Several large Indian banks are listed as options. - We only need to identify which bank completed this acquisition, not the exact amount or year. Concept / Approach: Freecharge was owned by Snapdeal before the sale. In 2017, Axis Bank entered into a share purchase agreement to acquire 100 percent of Freecharge in an all cash deal. The acquisition was part of Axis Bank's strategy to strengthen its digital payments ecosystem, gain access to a large user base and deepen its presence in the fast growing wallet and payments space. Step-by-Step Solution: Step 1: Recall that Freecharge was a well known payments wallet and that there was media coverage about which bank acquired it. Step 2: Connect this acquisition with Axis Bank, which publicly announced the deal and integration plans. Step 3: Compare with other options. HDFC Bank and ICICI Bank are large private banks, but they did not acquire Freecharge. Karnataka Bank is a smaller private sector bank and is also not associated with this deal. Step 4: Conclude that Axis Bank is the correct choice. Verification / Alternative check: If you check news reports or banking current affairs summaries about digital wallet acquisitions in India around 2017, you will consistently find that Axis Bank is named as the acquirer of Freecharge. This external confirmation supports your memory based reasoning. Why Other Options Are Wrong: Option A, HDFC Bank, is active in digital payments but did not acquire Freecharge. Option B, Karnataka Bank, is not known for such a major wallet acquisition. Option C, ICICI Bank, also focuses on digital banking but was not the acquiring bank in this transaction. These banks might have their own wallet products or partnerships, but they are not connected to the Freecharge acquisition described in the question. Common Pitfalls: Because several large private sector banks are active in digital initiatives, candidates sometimes mix up which bank acquired which fintech company. A useful way to remember this particular deal is to associate Freecharge with Axis Bank and another major wallet, as an example, with different banks. Keeping a short mental list of high profile acquisitions helps with such current affairs questions. Final Answer: Correct option: Axis Bank.

Question 14

Under the Coinage Act, 2011 in India, what is the maximum amount up to which coins of one rupee and above are legal tender in a single transaction?

Accepted Answer

Introduction / Context: Legal tender rules specify how coins and notes can be used to settle debts. For competitive exams and banking interviews in India, questions often test knowledge of the Coinage Act, 2011 and the limits on using coins for payments. Given Data / Assumptions: - The question refers to the Coinage Act, 2011, which sets legal tender limits for coins in India. - It asks specifically about coins of denominations not lower than one rupee, that is one rupee and higher coin denominations. - We must identify the maximum sum that such coins can be used for in any one transaction. Concept / Approach: According to the legal provisions, coins of any denomination not lower than one rupee are legal tender for any sum not exceeding a specified limit in a single transaction. This is meant to prevent inconvenience caused by very large payments being offered entirely in coins. For Indian law under the Coinage Act, 2011, this limit is one thousand rupees in any single transaction. Therefore, a person cannot insist on paying a very large bill entirely in rupee coins beyond that threshold. Step-by-Step Solution: Step 1: Focus on the phrase coins of any denomination not lower than one rupee, which excludes small coins like 25 paise that are no longer legal tender. Step 2: Recall or look up the legal limit for such coins under the Coinage Act, 2011. Step 3: Note that the Act provides that such coins are legal tender for a sum not exceeding one thousand rupees in any single payment. Step 4: Map this limit to the given options and select 1000 as the correct answer. Verification / Alternative check: You can test the logic by thinking of practical scenarios. For large value transactions, notes and electronic payments are normally used. A limit of one thousand rupees in coins seems reasonable for day to day use while avoiding impractically large quantities of coins for big bills. This fits the intent of the law better than very low or extremely high limits. Why Other Options Are Wrong: Option A, 100, and Option B, 200, are lower amounts and do not reflect the legal limit for rupee coins under the Coinage Act. Option C, 500, is also below the correct legal threshold. None of these match the statutory one thousand rupee cap for a single transaction using rupee coins as legal tender. Common Pitfalls: Some candidates memorise limits for different coin denominations but mix them up in the exam. For example, fifty paise coins are legal tender only up to a lower limit, whereas one rupee and higher coins have the one thousand rupee limit. Keeping these two separate figures in mind and linking them to the correct denominations avoids confusion in multiple choice questions. Final Answer: Correct option: 1000.

Question 15

In financial accounting terminology, what is the difference between Accounts Payable and Bills Payable?

Accepted Answer

Introduction / Context: Accounts Payable and Bills Payable are related but not identical terms in accounting. Many interviewers ask this question to check whether candidates can distinguish between simple trade credit and more formal written obligations. Given Data / Assumptions: - We are dealing with liabilities that arise from purchasing goods or services on credit. - Some obligations are based only on invoices and supplier agreements, while others are formalised through negotiable instruments such as bills of exchange or promissory notes. - The aim is to contrast the nature of these liabilities and their presentation in the books. Concept / Approach: Accounts Payable usually refers to amounts owed to suppliers on ordinary open account, based on invoices but without separate negotiable instruments. Bills Payable refers to written promises to pay a specified sum on a specified date, embodied in instruments like accepted bills of exchange or promissory notes. These instruments can sometimes be endorsed or discounted, which gives Bills Payable a slightly different legal status compared to simple trade payables. Step-by-Step Solution: Step 1: Define Accounts Payable as the balance due to suppliers for credit purchases where no formal bill or note has been issued. Step 2: Define Bills Payable as a liability arising when the business accepts a bill of exchange or issues a promissory note in favour of a creditor. Step 3: Recognise that both are liabilities, but Bills Payable are documented through negotiable instruments, which may have different legal and collection procedures. Step 4: Identify the option that clearly captures this difference in nature and documentation. Verification / Alternative check: In many balance sheets, Accounts Payable and Bills Payable are shown separately within current liabilities. This separation reflects the difference between open trade creditors and liabilities based on formal instruments. Seeing this separation in financial statements supports the conceptual distinction explained above. Why Other Options Are Wrong: Option A is wrong because it denies any difference between the terms, which is not accurate in standard accounting usage. Option C misclassifies Accounts Payable as related to employees and Bills Payable as related to customers, which is incorrect. Option D suggests a fixed rule on term, but in practice both Accounts Payable and Bills Payable are usually current liabilities due within a short period; the key difference is form, not just maturity. Common Pitfalls: Some learners use Accounts Payable and Bills Payable loosely as if they were interchangeable, which can create confusion when reading financial statements. Others assume Bills Payable exist only in theory, but many businesses still use bills of exchange or promissory notes, especially in trade finance. Being precise with terminology shows deeper understanding in an interview setting. Final Answer: Correct option: Accounts Payable is the general ledger balance for trade creditors on open account, while Bills Payable are formal written promises such as bills of exchange or promissory notes issued to creditors.

Question 16

In collections and receivables management, what is the main difference between front end collections and back end collections?

Accepted Answer

Introduction / Context: Credit and collections teams often divide their work into front end and back end collections. This division is common in banking, credit card companies and business process outsourcing units handling collections. Understanding the distinction helps explain how companies manage risk across the lifecycle of overdue accounts. Given Data / Assumptions: - Accounts move through different ageing stages from current to mildly overdue and then to severely delinquent. - Different skill sets and strategies are used at early and late stages of delinquency. - The terms front end and back end refer to these different stages and approaches in the collections cycle. Concept / Approach: Front end collections usually focus on early stage delinquencies, often in the first few cycles of non payment. The approach is more customer service oriented, using reminders, negotiation of payment dates and education about due amounts. Back end collections deal with accounts that are significantly overdue, sometimes charged off or close to write off. The emphasis is on recoveries, settlements, legal escalation or sale of portfolios to collection agencies. Step-by-Step Solution: Step 1: Define front end collections as the stage where accounts are newly past due and the goal is to bring customers back to regular payment behaviour quickly. Step 2: Define back end collections as the stage where accounts have been delinquent for a longer period and standard reminders have failed. Step 3: Recognise that front end collectors generally use softer communication, while back end collectors may handle negotiations, settlements or legal referrals. Step 4: Match this understanding with the option that clearly contrasts early stage and late stage work in collections. Verification / Alternative check: In many organisations, key performance indicators and targets differ between front end and back end teams. Front end teams may be measured on roll rates and curing rates, while back end teams are measured on recovery percentages on written off or high risk portfolios. This operational design confirms the conceptual difference between the two areas. Why Other Options Are Wrong: Option B incorrectly states that the difference is based solely on communication channel, which is not the defining factor. Option C is unrelated to receivables, describing inventory and payroll instead. Option D oversimplifies by linking front end and back end to manual and automated methods, which do not capture the true distinction in practice. Common Pitfalls: Some candidates think front end means customer facing and back end means internal support only. In collections, both front end and back end roles may involve direct customer interaction, but at different stages of risk. Another mistake is to assume that back end collections always involve legal action, whereas in reality legal escalation is only one of several tools used for severe delinquencies. Final Answer: Correct option: Front end collections deal with early stage overdue accounts using customer contact, while back end collections focus on severely delinquent accounts, recoveries and write off portfolios.

Question 17

In public finance and privatisation policy, what is meant by disinvestment by the government?

Accepted Answer

Introduction / Context: Disinvestment is a key term in discussions on economic reforms, privatisation and the role of the state in business. Government disinvestment policies affect public sector undertakings and capital markets, so this topic appears often in banking, economics and general awareness sections of interviews and exams. Given Data / Assumptions: - The question is about the meaning of disinvestment when used for government policy. - It refers to the government reducing its stake rather than completely exiting in all cases. - The focus is on public sector enterprises, not on general private investments by individuals. Concept / Approach: Disinvestment usually means the government selling part of its equity in public sector undertakings. This can be done through initial public offerings, follow on offers, strategic sales to private investors or offers for sale in the market. The objective can include raising resources, improving efficiency by bringing in private participation and widening ownership among the public. It does not refer to reducing foreign direct investment or arbitrary exits from private companies where the government does not already hold shares. Step-by-Step Solution: Step 1: Focus on the fact that disinvestment relates to government holding in public sector units. Step 2: Understand that it means selling part of this holding, thereby reducing the percentage of government ownership. Step 3: Note that this can still leave the government with a majority stake or can eventually lead to privatisation, depending on the level of disinvestment. Step 4: Choose the option that best matches this definition. Verification / Alternative check: Budget speeches and policy documents often talk about disinvestment targets as amounts to be raised through sale of government equity in public sector units. This usage confirms that the term is about reducing government shareholding in such enterprises, not about reducing foreign investment or other unrelated activities. Why Other Options Are Wrong: Option A talks about reducing government share in foreign direct investment, which is not how the term disinvestment is normally used in Indian policy. Option C mentions government share in the market in a vague way and does not specifically refer to public sector equity sales. Option D refers to private sector companies where the government does not hold shares in the first place, so there is nothing to disinvest from in that context. Common Pitfalls: Some candidates equate disinvestment with complete privatisation, but in practice the government may retain a significant stake even after several disinvestment rounds. Another confusion is to think that any reduction in investment by any investor is disinvestment, whereas in exam and interview contexts the term is often used specifically for government equity sales in public enterprises. Final Answer: Correct option: To reduce the government shareholding in public sector undertakings by selling part of its equity.

Question 18

In corporate finance, what is the main difference between a debenture and a preference share issued by a company?

Accepted Answer

Introduction / Context: Debentures and preference shares are two different sources of long term finance for companies. Interviews often test whether candidates understand how these instruments differ in terms of ownership, risk, return and position in the capital structure. Given Data / Assumptions: - Both debentures and preference shares are issued by companies to raise funds from investors. - Debentures are typically treated as debt, while preference shares are a special category within equity capital. - The question focuses on their fundamental characteristics, not on detailed legal variations in different jurisdictions. Concept / Approach: A debenture is a long term debt instrument. Investors who buy debentures are creditors of the company and usually receive fixed interest, which is a contractual obligation. They do not gain ownership rights or voting rights in the way equity shareholders do. Preference shares are part of share capital. Holders are owners with limited or no voting rights, but they have preferential rights to receive dividends at a fixed rate before ordinary shareholders and to receive capital repayment before ordinary shareholders in the event of liquidation. Step-by-Step Solution: Step 1: Classify debentures as debt, representing borrowing by the company, usually with fixed interest and a redemption schedule. Step 2: Classify preference shares as equity instruments that form part of the company's share capital, with preferential but not absolute rights. Step 3: Highlight that debenture holders are creditors, while preference shareholders are owners, though with limited control. Step 4: Select the option that correctly captures these distinctions. Verification / Alternative check: In financial statements, interest on debentures appears as a finance cost that reduces profit before tax, while preference dividends are usually appropriations of profit after tax. Also, debentures are shown under liabilities, whereas preference share capital is shown within equity. This classification supports the conceptual difference between the two instruments. Why Other Options Are Wrong: Option A reverses the nature of the instruments and is incorrect. Option C claims they are identical ordinary equity, which ignores the debt nature of debentures and the preferential but limited features of preference shares. Option D over generalises by stating that debentures are always secured and that preference shares are unsecured loans; in practice debentures can be secured or unsecured, and preference shares are not loans but part of equity capital. Common Pitfalls: Some learners think preference shares are a form of debt because they often pay fixed dividends, but the legal and accounting treatment is different from interest bearing loans. Others assume that debentures automatically carry voting rights because they are long term instruments, but creditors do not normally vote on company decisions in the same way as shareholders. Remembering who is a creditor and who is an owner is a simple way to keep the distinction clear. Final Answer: Correct option: A debenture is a long term debt instrument paying fixed interest without ownership rights, while a preference share is part of share capital with preferential rights to dividends and capital repayment.

Question 19

In an accounting and finance reporting system, what is a parked report or parked document and how is it typically used?

Accepted Answer

Introduction / Context: Many enterprise resource planning systems and accounting packages provide a feature to park documents or park reports. This is widely used in Accounts Payable and General Ledger work to capture transactions early but delay their final posting until checks and approvals are completed. Given Data / Assumptions: - The question is from an accounting and finance interview, so parked report refers to a system feature, not a parking business. - Parked status usually means the document is stored in the system but not yet posted to the main ledgers. - Approvers or senior accountants may later open the parked item, review it and either modify, post or reject it. Concept / Approach: Parking a document allows data entry staff to record the basic details of an invoice, journal or other transaction even if some approvals or supporting documents are pending. This reduces the risk of losing information and saves time, while still protecting the integrity of the accounts because parked items do not affect final balances until they are posted. In many systems, parked documents have their own list or report that managers can use to monitor what is waiting for action. Step-by-Step Solution: Step 1: Understand that parked refers to a temporary holding stage inside the system where a document exists but is not yet posted to the general ledger. Step 2: Recognise that users with appropriate rights can view the parked document, check coding and attachments and add or correct information. Step 3: After review and approval, another user posts the document, which then updates the relevant ledger accounts. Step 4: Select the option that describes this lifecycle of saving, reviewing and later posting a parked item. Verification / Alternative check: In many SAP or similar systems, menus show options to park vendor invoices or general ledger documents and separate options to post them. Reporting screens also display lists of parked items awaiting action. This system behaviour matches the explanation that parked items are temporarily saved, not yet final entries. Why Other Options Are Wrong: Option A describes a report that is already printed and closed, which is different from a document awaiting posting. Option C focuses on a business related to physical parking and is unrelated to accounting system features. Option D talks about parked cheques, which is a banking concept and does not correctly capture the idea of parked system documents in corporate accounting. Common Pitfalls: Some candidates confuse parked with posted and assume that a parked document already impacts the financial statements. Others treat parked as equivalent to draft with no control, but in good systems, parked items are still auditable and traceable. When explaining in an interview, stress that parked documents are stored with full details, visible for review, but they do not update ledger balances until posted. Final Answer: Correct option: A transaction or document saved in the system in parked status with incomplete approval or details, which can be reviewed, edited and later posted as a final entry.

Question 20

In accounting and accounts payable, what is meant by the term three way match in the invoice verification process, and which documents are compared before an invoice is approved for payment?

Accepted Answer

Introduction / Context: Three way match is a very important internal control used in accounts payable and procurement. The question is testing whether you understand which documents are compared and why this control is used before paying a supplier invoice. In modern organizations, three way matching helps prevent overpayment, duplicate payment, and payment for goods or services that were never received. Understanding this concept is essential for interview questions in accounting, finance, and enterprise resource planning implementations. Given Data / Assumptions: The context is basic accounting and accounts payable. Three way match is performed before an invoice is approved for payment. Typical purchasing documentation such as purchase orders, receiving reports, and supplier invoices are available. The organization wants to pay only for goods and services that were properly ordered and received. Concept / Approach: Three way matching means comparing three specific documents that arise in the procure to pay cycle. These are the purchase order, which shows what the company agreed to buy and at what price, the goods receipt note or receiving report, which shows what was actually delivered, and the supplier invoice, which shows what the vendor is billing. The core idea is that quantity, price, and basic terms on all three documents must match within defined tolerances. If the three documents agree, the invoice is considered valid and can move forward for payment approval. If they do not agree, the invoice is put on hold until the discrepancy is resolved. Step-by-Step Solution: Step 1: Identify which process the term three way match normally belongs to. It is part of the accounts payable and procurement control framework, not banking or external audit.Step 2: Recall the typical flow in the procure to pay cycle: purchase order is created, goods are received and recorded on a receiving report, and the supplier sends an invoice.Step 3: In three way matching, the accounts payable team compares the line items on the purchase order, the receiving report, and the supplier invoice for item description, quantity, unit price, and basic terms.Step 4: If all three documents match within tolerance, the invoice is approved and can be posted as a liability and scheduled for payment.Step 5: If there is a mismatch, the invoice is placed on hold and the buyer or procurement team investigates with the supplier before any payment is released. Verification / Alternative check: A good way to verify your choice is to ask whether the option clearly names three purchasing related documents and places the control in accounts payable. Option A explicitly mentions purchase order, goods receipt note or receiving report, and supplier invoice, and describes that the comparison is done before releasing payment. That matches standard accounting definitions from textbooks and practice. The other options either mention only two documents or describe processes related to banking, month end closing, or sales rather than procure to pay controls, so they do not fit the standard interpretation of three way match. Why Other Options Are Wrong: Option B is about reconciling cash book, bank statement, and general ledger, which describes a bank reconciliation process, not three way matching in accounts payable. Option C refers to matching trial balance, profit and loss account, and balance sheet, which is more like an audit or financial statement review and not an invoice matching control. Option D focuses on sales documents and dispatch rather than purchase and invoice verification, so it belongs to the order to cash cycle, not the procure to pay cycle. None of these reflect the classic three document comparison used before approving supplier invoices. Common Pitfalls: Many learners confuse three way match with two way match, where only the purchase order and supplier invoice are compared. Others think that any process that involves three documents can be called a three way match, which is not correct in professional terminology. Another common mistake is to mix three way matching with bank reconciliation, because both involve comparing different records. In exams, carefully read which documents are mentioned and whether the context is accounts payable and procurement, rather than banking or external audit. Final Answer: Three way match in accounting is a control in accounts payable that matches the purchase order, goods receipt note or receiving report, and supplier invoice before payment is released.

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