Accounting interview questions
How the three statements link, what happens when depreciation goes up, working capital, goodwill: the accounting every finance interview tests.
23 questions
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Accounting
1Walk me through the three financial statements and how they link.Core
What a strong answer covers
- Income statement: revenue to net income over a period
- Balance sheet: assets = liabilities + equity at a point in time
- Cash flow statement starts from net income, adjusts for non-cash items and working capital, plus investing and financing
- Links: net income to retained earnings and CFS; ending cash to balance sheet; capex and D&A to PP&E
2What is the difference between cash and accrual accounting?Core
What a strong answer covers
- Cash: revenue and expenses recorded when cash moves
- Accrual: recorded when earned or incurred, regardless of cash
- Accrual is required for most companies; creates receivables, payables, deferred revenue
3What is working capital, and why does an increase in it reduce cash flow?Core
What a strong answer covers
- Operating working capital: receivables + inventory - payables (current assets minus current liabilities, excluding cash and debt)
- An increase means more cash tied up in operations
- Appears as a negative adjustment in cash from operations
4What is deferred revenue? Give an example.Core
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5What is the purpose of an audit?Core
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6Depreciation increases by 10. Walk me through the impact on the three statements, assuming a 25% tax rate.Intermediate
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7Inventory increases by 20, paid in cash. What happens to the three statements?Intermediate
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8What is 'quality of earnings' and why does a buyer care about it?Intermediate
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9If you could only look at one financial statement to judge a company, which would you pick and why?Intermediate
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10A company buys a 100 machine using 100 of new debt. What happens to the three statements on the day of purchase?Intermediate
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