30 Important General ledger Interview Questions & Answers

The general ledger (GL) serves as the cornerstone of accounting, acting as a comprehensive master record of all financial transactions in an organization. General ledger interview questions can prove to be difficult at times if you are not aware of it.

It organizes data into accounts for assets, liabilities, equity, revenues, and expenses, enabling the preparation of accurate financial statements like the balance sheet and income statement.

In interviews for roles such as General Ledger Accountant, Bookkeeper, or Financial Controller, employers assess candidates’ technical knowledge, practical experience, and problem-solving skills.

List Of General Ledger Interview Questions

There are several types of general ledger interview questions & answers that can help you in  meeting your goals with complete ease. Some of the core interview questions that you must prepare before appearing for interview are as follows:-

1. What Is A General Ledger?

A General Ledger (GL) is the central, master record of a company’s entire accounting system. It is a complete set of accounts that systematically records all financial transactions of the business in chronological order, classified by account type.

Often called the “books” of the company, the general ledger contains every debit and credit entry, ensuring the double-entry accounting principle is maintained (total debits always equal total credits).

Key Features of a General Ledger:

• Organized by Chart of Accounts: Each account (e.g., Cash, Accounts Receivable, Revenue, Expenses) has a unique code and name.
• Contains Five Main Types of Accounts:
  • Assets
  • Liabilities
  • Equity
  • Revenues
  • Expenses
• Source of Financial Statements: Balances from the GL are used to prepare the trial balance, income statement, balance sheet, and cash flow statement.
• Supported by Sub-Ledgers: Detailed transactions (e.g., individual customer invoices) are maintained in sub-ledgers (AR, AP, Inventory), which roll up into control accounts in the GL.

2. What Is The Difference Between General Ledger And Sub-Ledger?

3. What Is A Chart Of Accounts?

A Chart of Accounts (COA) is a structured, organized list of all the accounts used in a company’s general ledger to classify and record financial transactions. It serves as the backbone of the accounting system, providing a systematic way to categorize every transaction into specific accounts.

Key Features:

• Unique Account Codes: Each account is assigned a unique number (e.g., 1000 for Cash, 2000 for Accounts Payable) for easy identification and sorting.
• Hierarchical Structure: Often organized in a numbered sequence that reflects the financial statement order:
  • 1000–1999: Assets
  • 2000–2999: Liabilities
  • 3000–3999: Equity
  • 4000–4999: Revenues
  • 5000–5999: Expenses (or Cost of Goods Sold)
  • 6000–7999: Other Expenses
• Account Names and Types: Includes descriptive names and classifies accounts as Asset, Liability, Equity, Income, or Expense.
• Customizable: Tailored to the company’s size, industry, and reporting needs (e.g., a manufacturing firm may have detailed inventory accounts).

Purpose:

• Ensures consistent recording of transactions.
• Facilitates accurate financial reporting (balance sheet, income statement).
• Supports budgeting, analysis, and auditing.
• Enables integration with ERP systems like SAP, Oracle, or QuickBooks.

4. What Are The Types Of Accounts In The General Ledger?

The General Ledger organizes all financial transactions into five main types of accounts. These categories follow the basic accounting equation: Assets = Liabilities + Equity (with Revenues increasing Equity and Expenses decreasing it).

• Asset Accounts These represent resources owned or controlled by the business that provide future economic benefits. Examples: Cash, Accounts Receivable, Inventory, Prepaid Expenses, Property, Plant & Equipment. Normal balance: Debit.
• Liability Accounts These represent obligations or debts the business owes to outsiders or creditors. Examples: Accounts Payable, Loans Payable, Accrued Expenses, Taxes Payable, Bonds Payable. Normal balance: Credit.
• Equity (Owner’s Equity or Shareholders’ Equity) Accounts These represent the owner’s residual interest in the business after deducting liabilities from assets. Examples: Owner’s Capital, Common Stock, Additional Paid-in Capital, Retained Earnings, Drawings (for sole proprietorships). Normal balance: Credit.
• Revenue (Income) Accounts These record inflows from the business’s primary operations and other gains. Examples: Sales Revenue, Service Revenue, Interest Income, Rent Income. Normal balance: Credit.
• Expense Accounts These record outflows or costs incurred to generate revenue. Examples: Salaries Expense, Rent Expense, Utilities Expense, Depreciation Expense, Advertising Expense. Normal balance: Debit.

5. Explain The Double-Entry Accounting System.

The double-entry accounting system is the foundation of modern accounting. It ensures that every financial transaction is recorded in at least two different accounts, maintaining the balance of the accounting equation:

Assets = Liabilities + Equity

Core Principle

• For every debit entry, there must be a corresponding and equal credit entry (and vice versa).
• Total debits always equal total credits.
• This creates a self-balancing system that reduces errors and provides a complete view of transactions.

6. What Is A Journal Entry?

A journal entry is the initial recording of a financial transaction in the accounting system. It is the first step in the double-entry bookkeeping process, where every transaction is chronological record  in the general journal (or simply “journal”) before being posted to the general ledger accounts.

Key Characteristics:

• Chronological Order: Entries are recorded in the order transactions occur, with a date for each.
• Double-Entry Format: Every journal entry affects at least two accounts—one (or more) debited and one (or more) credited—with debits equaling credits.
• Components of a Journal Entry:
  • Date of the transaction
  • Account names (to be debited and credited)
  • Amounts (debit and credit columns)
  • Brief description/narration (explaining the purpose)

7. What Is Posting In The Context Of GL?

Posting is the process of transferring the debit and credit amounts from journal entries (recorded in the general journal or specialized journals) to the appropriate accounts in the general ledger (GL).

It is the second major step in the accounting cycle after initially recording transactions as journal entries.

Purpose of Posting

• Updates individual account balances in the GL to reflect the latest transactions.
• Enables preparation of the trial balance and financial statements by accumulating all debits and credits in each account.
• Maintains a running balance for each GL account (e.g., current balance of Cash, Accounts Receivable, etc.).

How Posting Works (Step-by-Step)

• A transaction is first recorded as a journal entry (chronological record) with debits and credits.
• The amounts from each journal entry are posted (transferred) to the respective GL accounts:
  • Debit amounts are posted to the debit side of the affected account(s).
  • Credit amounts are posted to the credit side of the affected account(s).
• A reference (e.g., journal page number or entry ID) is noted in both the journal and GL for cross-referencing and audit trail.
• The GL account balance is updated after each posting.

8. What Is An Adjusting Entry? Give Examples.

An adjusting entry is a journal entry made at the end of an accounting period (month, quarter, or year) to ensure that revenues and expenses are recorded in the period in which they are earned or incurred, regardless of when cash is received or paid. This follows the accrual basis of accounting and the matching principle, ensuring financial statements accurately reflect the company’s performance and position.

Adjusting entries are necessary because some transactions or events (e.g., depreciation, accruals) are not captured through daily operations and must be recognized at period-end.

Types of Adjusting Entries

There are primarily four common types:

1. Accrued Revenues (Unbilled Revenue) Revenue earned but not yet recorded or billed. Example: A consulting firm completed Rs 20,000 worth of services in December but will bill the client in January. Entry: Debit: Accounts Receivable ₹20,000 Credit: Service Revenue ₹20,000
2. Accrued Expenses Expenses incurred but not yet recorded or paid. Example: Salaries of Rs 15,000 earned by employees in the last week of December, to be paid in January. Entry: Debit: Salaries Expense ₹15,000 Credit: Salaries Payable ₹15,000
3. Prepaid Expenses (Deferred Expenses) Expenses paid in advance that need to be allocated to the current period. Example: Insurance premium of Rs 12,000 paid in advance for the full year on January 1. One month (Rs 1,000) expires in January. Entry: Debit: Insurance Expense ₹1,000 Credit: Prepaid Insurance ₹1,000
4. Depreciation Allocation of the cost of a fixed asset over its useful life. Example: A machine costing Rs 100,000 with a 10-year life has monthly depreciation of Rs 833 (straight-line). Entry: Debit: Depreciation Expense ₹833 Credit: Accumulated Depreciation ₹833

9. What Is An Accrual?

An accrual is an accounting concept and adjusting entry used to record revenues or expenses in the period they are earned or incurred, regardless of when cash is actually received or paid. It follows the accrual basis of accounting (required under GAAP and IFRS), ensuring financial statements reflect the true economic activity of the period via the matching principle (match revenues with related expenses).

10. What Is A Reversing Entry?

A reversing entry is a journal entry made on the first day of a new accounting period that exactly reverses certain adjusting entries from the end of the previous period. Its purpose is to simplify the recording of subsequent related transactions and prevent double-counting of revenues or expenses when the actual cash movement occurs.

Reversing entries are optional but commonly used for accrual-type adjusting entries (accrued revenues and accrued expenses).

Why Use Reversing Entries?

• Without reversal: When the actual payment/receipt is recorded later, you must remember the prior accrual to avoid duplicating the revenue/expense.
• With reversal: The accrual is automatically “canceled,” so the subsequent entry can be recorded normally as if no accrual existed.

11.What Is Account Reconciliation?

Account reconciliation is the process of verifying and matching the balances in a company’s general ledger (GL) accounts with supporting external documents, sub-ledgers, or third-party records to ensure accuracy, completeness, and validity of financial data. It identifies discrepancies caused by errors, timing differences, omissions, or fraud, and resolves them through adjustments.

Purpose

• Ensures financial statements are reliable and compliant with standards like GAAP/IFRS.
• Detects errors, fraud, or control weaknesses.
• Supports audit readiness and internal controls (e.g., SOX compliance).

12.Why Is Bank Reconciliation Important In GL?

Bank reconciliation is the process of matching the cash balance in the general ledger (GL cash account) with the balance reported on the bank statement. It is one of the most critical internal controls in accounting and plays a vital role in maintaining the integrity of the GL. Here are the key reasons why it is important:

• Ensures Accuracy of Cash Balances The GL cash account must reflect the true amount of cash available. Reconciliation identifies and corrects discrepancies, ensuring the cash balance in financial statements (balance sheet) is reliable.
• Detects Errors Common errors like duplicate entries, omitted transactions, transposed amounts, or math mistakes in the books or bank processing are uncovered and corrected promptly.
• Identifies Unrecorded Items Items known to the bank but not yet recorded in the GL (e.g., bank service charges, interest earned, NSF checks, automatic deductions) are discovered and recorded via journal entries.
• Reveals Timing Differences Normal differences such as deposits in transit and outstanding checks are explained, preventing misinterpretation as errors.
• Prevents and Detects Fraud Regular reconciliation acts as a detective control, highlighting unauthorized transactions, altered checks, or embezzlement early.

13. What Are Reconciling Items In Bank Reconciliation?

Reconciling items are the differences between the cash balance shown in the company’s general ledger (cash book) and the balance on the bank statement. These items explain why the two balances do not match at a given date and are adjusted during the bank reconciliation process to arrive at the true available cash balance.

They generally fall into three categories: timing differences, items known only to the bank, and errors.

1. Timing Differences These are normal and temporary, arising because transactions are recorded at different times in the books versus the bank.
   • Deposits in transit: Deposits recorded in the cash book but not yet credited by the bank (e.g., late-day deposits). Added to the bank statement balance.
   • Outstanding checks: Checks issued and recorded in the books but not yet cleared by the bank. Subtracted from the bank statement balance.
2. Items Known Only to the Bank (Unrecorded in Books) These are transactions processed by the bank but not yet entered in the company’s records.
   • Bank service charges/fees: Deducted by the bank (e.g., monthly fees). Subtracted from the cash book balance.
   • Interest earned: Credited by the bank. Added to the cash book balance.
   • NSF (non-sufficient funds) checks: Customer checks that bounced. Subtracted from the cash book balance.
   • Bank collections or direct credits/debits: Amounts collected or deducted automatically by the bank. Added or subtracted from the cash book as appropriate.
3. Errors Mistakes made either by the bank (rare) or in the company’s books.
   • Book errors (e.g., wrong amount recorded) journal entries on the book side.

Timing differences require no journal entries—they clear naturally in the next period. Unrecorded bank items and book errors require journal entries after reconciliation to update the books permanently.

14.What Happens If A GL Account Is Out Of Balance?

In double-entry accounting, the general ledger should always be in balance—total debits across all accounts must equal total credits. If a GL account (or the entire ledger) is “out of balance,” it means debits do not equal credits, indicating an error has occurred. This is usually detected when the trial balance does not balance (debit column ≠ credit column).

Consequences

• Inaccurate Financial Statements The imbalance flows through to the trial balance, making the balance sheet and income statement unreliable (e.g., assets won’t equal liabilities + equity).
• Delayed Financial Close Month-end or year-end closing cannot proceed until the discrepancy is resolved.
• Audit Issues and Compliance Risks Auditors will flag it as a control weakness, potentially leading to qualified opinions or SOX deficiencies.
• Misguided Decision-Making Management may make poor decisions based on incorrect account balances.

15.What Is A Trial Balance?

A trial balance is a financial report (or worksheet) that lists the ending balances of all general ledger accounts at a specific point in time (usually month-end or year-end). It is prepared to verify that the total debits equal total credits in the double-entry accounting system, ensuring the ledger is mathematically in balance.

Key Features

• Columns: Typically three—Account Name, Debit Balance, Credit Balance.
• Accounts Included: All active GL accounts (assets, liabilities, equity, revenues, expenses).
• Balances: Only ending balances (not individual transactions) are shown.
• Purpose:
  • Detects posting or mathematical errors early.
  • Serves as a starting point for preparing financial statements (income statement, balance sheet).

16.What Is The Purpose Of The Month-End Close Process?

The month-end close process (also called period-end close) is a structured set of activities performed at the end of each accounting period (usually monthly) to finalize the company’s financial records. Its primary purpose is to ensure that the general ledger is accurate, complete, and up-to-date, enabling the preparation of reliable financial statements that reflect the true financial performance and position for that period.

Key Purposes

• Accurate Financial Reporting Ensures revenues, expenses, assets, and liabilities are properly recognized in the correct period under accrual accounting (matching principle).
• Compliance with Standards Adheres to GAAP, IFRS, or local regulations by recording all necessary adjustments (accruals, prepayments, depreciation).
• Timely Management Insights Provides management with accurate monthly financial reports (income statement, balance sheet, cash flow) for decision-making, budgeting, and forecasting.
• Error Detection and Correction Identifies discrepancies through reconciliations, trial balances, and reviews, preventing errors from carrying forward.
• Audit Readiness Maintains a clean audit trail with documented adjustments and reconciliations, reducing year-end audit effort.
• Internal Control Strengthening Enforces segregation of duties, approvals, and reviews to prevent/detect fraud.
• Preparation for Next Period Closes temporary accounts (if annual) or rolls forward balances accurately.

17.Name Some Common Month-End GL Activities.

• The month-end close process involves a series of standardized tasks to ensure the general ledger is accurate and complete before generating financial reports. Here are some of the most common GL activities present at month-end:
• Record All Transactions Ensure all daily transactions (sales, purchases, payments, receipts) are to the GL.
• Post Recurring Journal Entries Enter standard recurring entries (e.g., rent, subscriptions, loan interest).
• Run Depreciation and Amortization Calculate and post depreciation for fixed assets and amortization for intangible assets.
• Prepare and Post Adjusting Entries Record accruals (e.g., accrued expenses, accrued revenue), prepayments, provisions, and other adjustments.
• Perform Account Reconciliations Reconcile key balance sheet accounts (e.g., bank, accounts receivable, accounts payable, fixed assets, intercompany).
• Review and Clear Suspense Accounts Investigate and reclassify items in suspense or clearing accounts.
• Eliminate Intercompany Transactions (for groups) Remove intra-group balances and transactions for consolidation.

18. What Is Depreciation And How Is It Recorded In GL?

Depreciation is the systematic allocation of the cost of a tangible fixed asset (e.g., buildings, machinery, vehicles, furniture) over its useful life. It reflects the gradual wear and tear, obsolescence, or reduction in economic value of the asset as it is used in business operations.

Purpose of Depreciation

• Matches the cost of the asset with the revenues it helps generate (matching principle).
• Reduces the asset’s book value on the balance sheet over time.
• Recognizes a non-cash expense on the income statement, lowering taxable income.

Depreciation applies only to tangible assets with a finite useful life (not land).

Common Methods

• Straight-Line: Even allocation over useful life.
• Diminishing Balance/Declining Balance: Higher expense in early years.
• Units of Production: Based on usage/activity.

Depreciation is recorded via an adjusting journal entry at the end of each accounting period (monthly, quarterly, or annually).

Standard Journal Entry:

19.What Is The Difference Between Provision And Accrual?

Both provision and accrual are adjusting entries used in accrual-basis accounting to recognize expenses or liabilities before cash changes hands. However, they differ in certainty, estimation, and purpose.

20.What Is Intercompany Reconciliation?

Intercompany reconciliation is the process of matching and eliminating transactions and balances between related entities (subsidiaries, affiliates, parent company) within the same corporate group. It ensures that internal transactions (e.g., sales, purchases, loans) do not distort the consolidated financial statements of the group.

Why It Is Needed

In separate legal entity books:

• One entity records a receivable (e.g., from intercompany sale).
• The other records a payable.

These are real for individual entities but cancel out when viewing the group as a single economic unit. Without reconciliation:

• Revenues and expenses are overstated.
• Assets and liabilities are duplicated.

21.How Do You Handle Foreign Currency Transactions In GL?

Foreign currency transactions occur when a company buys/sells goods, borrows/lends, or holds assets/liabilities in a currency other than its functional (reporting) currency. Accounting standards (IFRS – IAS 21; US GAAP – ASC 830) require specific treatment to reflect exchange rate fluctuations accurately.

• Initial Recognition (Transaction Date)
• Subsequent Measurement (Period-End Revaluation)
• Settlement Date
• Income Statement Impact

22.What Is A Suspense Account?

A suspense account is a temporary holding account in the general ledger used to record transactions or amounts that cannot be immediately classified or posted to the correct permanent account due to incomplete, uncertain, or missing information. It acts as a “parking place” until the proper account is identified.

Purpose

• Prevents delays in recording transactions while investigations are ongoing.
• Maintains the double-entry balance (debits = credits) even when details are unclear.
• Ensures the trial balance remains in balance temporarily.
• Helps detect and correct errors efficiently.

Common Uses

• Unidentified customer payments (e.g., receipt without invoice reference).
• Partial or unclear remittances from banks.
• Errors in posting (e.g., wrong amount or account initially).
• Discrepancies found during reconciliation.
• Temporary differences in intercompany or payroll processing.

23.What Are Control Accounts?

Control accounts (also known as summary accounts or total accounts) are general ledger (GL) accounts that contain the aggregated (summarized) balance of a specific category of transactions. They act as a control mechanism by providing a high-level total that must match the detailed records maintained in a separate sub-ledger (subsidiary ledger).

Purpose of Control Accounts

• Keep the general ledger concise and uncluttered by avoiding thousands of individual transaction postings.
• Enable efficient financial reporting using summarized GL balances.
• Provide internal control: The control account balance must periodically reconcile with the total of the sub-ledger details.
• Facilitate segregation of duties and error detection.

24. Explain The Flow Of A Transaction From Source Document To GL.

In accounting, every financial transaction follows a structured accounting cycle to ensure accurate recording and reporting. The flow starts with a source document and ends in the general ledger (GL). Here’s the step-by-step process:

• Occurrence of Transaction A business event happens (e.g., sale of goods, purchase of supplies, payment of salary).
• Source Document Created/Captured This is the original evidence of the transaction. Examples: Invoice, receipt, purchase order, sales order, bill, check stub, bank statement, time sheet, shipping document. Purpose: Provides proof and details (date, amount, parties involved, description).
• Transaction Recorded in Journal (Journalizing) The details from the source document are analyzed and recorded as a journal entry in the general journal or specialized journals (e.g., sales journal, purchases journal, cash receipts journal).
  • Follows double-entry rules (debit = credit).
  • Chronological order with narration/explanation.
• Journal Entry Posted to Ledger (Posting) The debit and credit amounts from the journal entry are transferred (posted) to the respective accounts in the general ledger (GL).
  • If sub-ledgers exist (e.g., AR, AP), details are first posted to sub-ledgers, then summarized totals to GL control accounts.
  • Updates individual account balances (running total).
• General Ledger Updated The GL now reflects the transaction in the appropriate accounts (e.g., Cash, Revenue, Expense). This completes the flow into the GL.

25. What Is GL Scrubbing Or Cleanup?

GL scrubbing (also known as general ledger cleanup or GL housekeeping) is the process of reviewing, correcting, and cleaning up the general ledger accounts to ensure they are accurate, complete, and free of unnecessary or erroneous items. It involves identifying and resolving old, stale, inactive, or misclassified balances and transactions that no longer serve a valid purpose.

Purpose of GL Scrubbing

• Improves data integrity and reliability of financial statements.
• Reduces clutter in the GL for better reporting and analysis.
• Ensures compliance with accounting standards and audit requirements.
• Prevents material misstatements from carrying forward.
• Facilitates smoother month-end/year-end closes and audits.

Common Activities in GL Scrubbing/Cleanup

• • Clearing Open Items Investigate and resolve old unreconciled items in balance sheet accounts (e.g., suspense, clearing accounts).
  • Writing Off Stale Balances Identify and write off small, immaterial old balances (e.g., aged receivables/payables below threshold) with proper approval.
  • Reclassifying Misposted Entries Correct transactions posted to wrong accounts (e.g., expense capitalized as asset).
  • Reconciling and Closing Inactive Accounts Zero out or close dormant accounts with no activity.

• Handling Aged Items

• • Outstanding checks >6–12 months: Void and reverse.
  • Unclaimed balances: Escheat to government per local laws.
  • Old accruals/provisions no longer needed: Reverse.
• Eliminating Duplicates Remove duplicate journal entries or postings.
• Reviewing Suspense/Transit Accounts Ensure all items are properly classified (suspense balance should ideally be zero).

26.Name Some Popular GL/ERP Systems You Have Worked With.

In general ledger and financial accounting roles, interviewers often ask about experience with ERP (Enterprise Resource Planning) systems that include robust general ledger modules. Here are some of the most popular ones widely used across industries:

• SAP (especially SAP ECC and SAP S/4HANA) The market leader for large enterprises. Powerful GL with multi-company, multi-currency, and real-time reporting capabilities.
• Oracle Financials (Oracle E-Business Suite, Oracle Fusion Cloud ERP) Comprehensive GL module, strong in consolidation, intercompany, and financial controls.
• NetSuite (Oracle NetSuite) Cloud-based ERP popular with mid-sized and growing companies. Fully integrated GL with easy customization and real-time dashboards.
• Microsoft Dynamics 365 (formerly Dynamics GP, NAV, AX) Flexible, integrates well with Microsoft products (Excel, Power BI). Strong in distribution and manufacturing.
• QuickBooks (QuickBooks Online and Desktop) Dominant for small to medium businesses. Simple GL functionality with good bank feeds and reporting.

27.How Do You Ensure Data Accuracy In The GL?

Maintaining data accuracy in the general ledger is critical for reliable financial reporting, compliance, and decision-making. Accuracy is achieved through a combination of preventive controls, detective controls, and ongoing processes. Here are the key methods:

• Segregation of Duties (SOD) Separate responsibilities: One person records transactions, another approves/post, and a third reconciles. This prevents fraud and errors.
• Automated Systems and Validations Use ERP/GL software (e.g., SAP, Oracle, NetSuite) with built-in rules:
  • Mandatory fields, balanced journal entries (debits = credits).
  • Account validation and workflow approvals before posting.
• Regular Account Reconciliations Reconcile all balance sheet accounts (bank, AR, AP, fixed assets, intercompany) monthly to supporting records/sub-ledgers. Resolve discrepancies promptly.
• Review and Approval Workflows Require supervisory or independent review and sign-off on journal entries, adjustments, and reconciliations.
• Trial Balance Reviews Generate and review trial balances regularly to spot unusual balances, zero-balance active accounts, or unexpected fluctuations.
• Standardized Chart of Accounts and Policies Consistent account usage, clear posting guidelines, and documented procedures reduce misclassifications.

28.What Is The Impact Of An Incorrect GL Entry On Financial Statements?

An incorrect GL entry violates the double-entry principle or misclassifies a transaction, leading to misstated account balances. These errors flow directly into the financial statements, potentially distorting the company’s reported financial position, performance, and cash flows. The impact depends on the type, magnitude, and accounts affected.

Key Impacts

• Balance Sheet Misstatement
  • Assets, liabilities, or equity become over- or understated.
  • Example: Recording an expense as a fixed asset → Assets overstated, Expenses understated → Equity (retained earnings) overstated.
  • Consequence: Violates Assets = Liabilities + Equity equation.
• Income Statement Misstatement
  • Revenues or expenses are over- or understated, affecting net profit/loss.
  • Example: Duplicate revenue entry → Revenue and profit overstated.
  • Example: Omitting an expense → Profit overstated.
• Cash Flow Statement Impact
  • Misclassification (e.g., operating vs. investing activity) distorts cash flows by section.
  • Incorrect amounts may indirectly affect reported cash movements.
• Ratio and Analysis Distortion
  • Key ratios (e.g., current ratio, debt-to-equity, profit margin, ROA) become unreliable, misleading management, investors, and lenders.
• Compliance and Audit Risks
  • Material errors can lead to qualified audit opinions, restatements, regulatory penalties (e.g., SOX violations), or loss of stakeholder trust.

29. What Are The Closing Entries?

Closing entries are journal entries made at the end of an accounting period (typically year-end) to transfer the balances of temporary (nominal) accounts to a permanent account (usually Retained Earnings or Owner’s Capital). The purpose is to reset temporary accounts to zero for the next period, ensuring that revenues, expenses, and dividends/withdrawals do not carry over and mix with the new period’s activity.

Why Are Closing Entries Needed?

• Temporary accounts (revenues, expenses, dividends/drawings) track activity for a single period.
• Closing them allows the income statement to start fresh each year while summarizing the period’s net profit/loss into equity.
• Prepares the GL for the next period and facilitates accurate financial reporting.

Types of Accounts Involved

• Temporary Accounts (closed):
  • All Revenue accounts
  • All Expense accounts
  • Dividends/Drawings (for corporations/sole proprietorships)
  • Income Summary (a temporary holding account used in some processes)
• Permanent Accounts (not closed):
  • Assets, Liabilities, Equity (except dividends)

30. How Do You Handle Prior Period Adjustments?

A prior period adjustment (also called prior period error correction) is the correction of a material error discovered in previously issued financial statements. It is not a routine adjustment for new information or estimates—only for errors (e.g., mathematical mistakes, misapplication of accounting principles, or oversight of facts existing at the time).

Steps to Handle Prior Period Adjustments

1. Identify the Error Determine if it is material (quantitatively and qualitatively) and qualifies as a prior period error (not a change in estimate or accounting policy).
2. Quantify the Impact Calculate the cumulative effect on retained earnings and affected accounts as of the beginning of the earliest period presented.
3. Record the Adjustment in the GL
   • Do not route through current period income statement.
   • Adjust directly to Retained Earnings (or Equity) and related balance sheet accounts.
   • Journal Entry Example (error: Expense understated by Rs 100,000 in prior year, leading to overstated profit):

• If tax impact exists: Adjust deferred tax assets/liabilities accordingly.

1. Restate Comparative Financial Statements
   • Represent prior periods as corrected (e.g., if current year is 2026, restate 2025 and 2024 if presented).
   • Disclose in notes: Nature of error, amounts corrected per line item, and impact on earnings per share (if applicable).
2. Disclosure Requirements
   • Explain the error and correction in financial statement footnotes.
   • For IFRS: Third balance sheet (beginning of preceding period) if material impact.

Final Takeaway

Hence, these are some of the crucial facts about the General Ledger interview questions that you must be well aware off. Application of correct solution can assist you in meeting your goals with complete ease.

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ICA Edu Skills Team

Working with businesses in diverse industries. I'm passionate about helping others understand and manage their finances effectively. This blog is where I share practical tips, insightful guides, and the latest updates on accounting, taxation, GST, TallyPrime, and advanced Excel. Feel free to ask questions, leave comments.

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