Can you explain the difference between cash and accrual accounting, and give an example of when it matters?

What the interviewer is looking for

• This question tests accounting principles. Explains accruals, revenue recognition, deferrals and matching correctly with real examples of journal entries.
• Strong answers: Accrual records revenue and expense when earned or incurred rather than when cash moves, with a correct example and why it gives a truer picture.
• Likely follow-up: What journal entry would you book for that December bill?

Another way it may be asked: If a company gets a utility bill in January for December's electricity, when should that cost be recorded and why?

A structure to follow: Answer, explain, example, limits

1. Step 1

   Answer

   Give your direct answer in the first sentence so the interviewer knows where you are going.

2. Step 2

   Explain

   Say how it works or why you would do it that way, in plain words before jargon.

3. Step 3

   Example

   Anchor it in something you have actually done or seen, with the detail that shows hands-on experience.

4. Step 4

   Limits

   Say when your approach would not be the right one. It shows judgement.

This is guidance on shape, not a script. Use your own real experience and facts; never invent details to fill a gap. See the STAR guide and answer frameworks.

Common slips

• Reciting a definition without showing you have applied it.
• Using terms you cannot explain if asked a level deeper.
• Claiming experience beyond what you can discuss in detail.

How to practise it

Say the answer in 90 seconds, then answer the follow-up as if it were a new question.

Related questions

• A customer pays upfront for a twelve month software subscription. How would you account for that?
• Your bank reconciliation is off by a few hundred dollars at month end. Walk me through how you'd track down the difference.
• A manager asks you to record an expense next month instead of this month to make the numbers look better. What would you do?
• Walk me through the month end close you've worked in and the parts you personally owned.
• Which accounting systems have you worked in, and what's something you automated or sped up?

Browse all questions