Accounting Interview Questions

Walk me through the three financial statements.

How do the three financial statements link together?

What is EBITDA and why do bankers use it?

What items appear on all 3 financial statements?

If depreciation increases by $10, walk through the impact on all three financial statements. Assume a 30% tax rate.

What's the difference between straight-line and accelerated depreciation?

When can revenue be recognized under ASC 606 / IFRS 15?

What is the difference between AR and DR?

What goes into NWC?

If you have a one-time 100 increase to Accounts Receivable, what could be a cause for that?

What kinds of companies would have deferred revenues?

What is the interest coverage ratio, and why is it used?

Why does an increase in accounts receivable hurt cash flow?

How would you calculate net working capital and why does it matter in M&A?

What's the difference between LIFO and FIFO inventory accounting, and how does it affect financial statements?

If goodwill is impaired by $50, walk through the impact on the three statements.

How does stock-based compensation flow through the financial statements?

Why might a company with positive EBITDA for 10 straight years still go bankrupt?

Prepaid expenses decrease by $10. Walk through the impact on the three statements (40% tax rate).

A company takes a $100 asset write-down. Walk through the three statements (40% tax rate).

In 2023: $150 AR, $100 inventory, $150 AP. In 2024: $250 AR, $200 inventory, $250 AP. Revenue $2,000, COGS $1,000. Calculate the cash conversion cycle.

A SaaS company collects $100 upfront for a 12-month subscription. Compare the three-statement treatment when (a) recognized fully at sale vs (b) deferred and recognized over the period.

What does a positive or negative Working Capital mean?

Walk me through the three financial statements when stock-based compensation increases by $100. Assume a 20% tax rate.

Walk me through the three financial statements with $100 of operating expenses. Tax rate is 20%.

Walk me through the three financial statements when you buy a factory for $100 with $100 of debt. Tax rate is 20%.

A company receives $100 in cash upfront for a subscription that will be delivered over 12 months. Walk through the accounting entries in month 1.

What is a deferred tax liability and when does it arise?

What is minority interest (non-controlling interest) and how is it treated?

How has ASC 842 changed lease accounting and what does it mean for valuation?

A company sells PPE worth $100 (book value) for $120 cash. Walk through the three statements (40% tax rate).

A company writes down $100 of its own outstanding debt (e.g., it bought it back at a discount). Walk through the three statements (40% tax rate).

In Year 1, a company buys $100 of new factories funded entirely with debt at 10% interest (no principal paydown). Factories depreciate 10% straight-line. Walk through the three statements at the end of Year 1 (40% tax rate).

Continuing from the prior question: at the end of Year 2, the factories break down and are written down to $0, and the $100 loan must be repaid in full. Walk through Year 2.

A company has $100 of NOLs on its balance sheet (as a DTA). This year it earns $200 PTI and uses the full NOL balance. Walk through the three statements (40% tax rate).

A company has $100 of interest expense (50% cash, 50% PIK) and $50 of interest income. Walk through the three statements (30% tax rate).

A company acquires a $200 factory: 50% cash, 50% debt at 10% interest (half PIK, half cash). 10-year straight-line depreciation, no salvage. Walk through Year 1 (20% tax rate).

A company depreciates an asset $15 for tax (accelerated) but $10 on its books (straight-line). Walk through the three statements (20% tax rate).

You have 2 balance sheets (start and end of year). How do you reconstruct EBITDA?

Walk me through the three financial statements when debt increases by $200 and you buy a factory. Depreciation is 10%, annual debt repayment is 20%, and interest is 5%.