Accounting interview questions: 25 real questions

001Walk me through the three financial statements.

core

• If you could only have two statements, which would you pick?
• Which statement is most important for a lender vs an equity investor?

002How are the three statements linked?

core

• Where does CapEx show up on each statement over time?

003How can a company report positive EBITDA but negative net income?

core

• Which of those causes would concern you most as a lender, and why?
• Could the reverse occur, negative EBITDA but positive net income? What would drive it?

004Depreciation goes up by $10 with a 40% tax rate. Walk me through all three statements.

intermediate

• Why does cash go UP when an expense increases?
• Now do the same for year 2 if depreciation returns to normal.

005What is working capital, and what does negative working capital mean?

intermediate

• Is an increase in working capital a use or source of cash?

006What's the difference between deferred revenue and accounts receivable?

intermediate

• Why is deferred revenue a liability if it's cash you already have?

007Can a company be profitable and still go bankrupt?

intermediate

• What line items would you check first to spot this risk?

008When do you capitalize versus expense a cost?

intermediate

• How would aggressive capitalization inflate earnings?

009What is goodwill and when does it get impaired?

intermediate

• Walk through an impairment's effect on the three statements.

010You buy $100 of equipment with cash. Walk through the statements at purchase and after year one (10-year straight line, 40% tax).

intermediate

• Why doesn't the purchase hit the income statement immediately?

011A company is growing revenue 50% a year and is profitable. Why might its cash flow be negative?

intermediate

• What financing options does such a company have?

012Difference between accounts payable and accrued expenses?

intermediate

• Which would you expect to swing more quarter to quarter?

013Walk me through the main items in shareholders' equity.

intermediate

• How can a healthy company have negative shareholders' equity? (Massive buybacks/dividends, e.g., strong-brand consumer companies)

014A company carries $600 million of PP&E depreciating straight-line at 10% per year and generates $1.2 billion of revenue. What is the minimum capex, as a percentage of revenue, needed for its PP&E balance to grow?

intermediate

• If revenue grows 20% next year while PP&E and the depreciation rate are unchanged, what happens to that minimum percentage?
• How does the distinction between maintenance and growth capex map onto this question?
• For a mature company, what relationship between depreciation and capex would you expect, and what does it signal if capex is persistently below depreciation?

015During a period of rising input costs, how does the choice between LIFO and FIFO inventory accounting affect COGS, net income, taxes, and the balance sheet?

intermediate

• Which method leaves the company with more cash, and why?
• What is the LIFO reserve and how do you use it in comps?
• In a deflationary environment, how do all of these effects change?

016Inventory is written down by $100. Walk me through the statements (40% tax).

advanced

• What if the inventory is later sold, can you write it back up under US GAAP?

017Where do deferred tax liabilities come from?

advanced

• What creates a deferred tax ASSET?

018You buy $100 of inventory with cash, then sell it for $150 on credit. Walk through both steps.

advanced

• When does the cash actually show up?

019What is a deferred tax asset? Give an example.

advanced

• Why might an acquirer value a target's NOLs, and what limits them?

020Walk through a $100 share buyback (cash on hand), statements and EPS.

advanced

• When would a buyback be EPS-dilutive?

021How does GAAP accounting differ from tax accounting, and what bridges them?

advanced

• Which creates the DTL: book depreciation higher or tax depreciation higher in early years?

022How are leases accounted for under current US GAAP (ASC 842)?

advanced

• Why does IFRS vs GAAP lease treatment distort EV/EBITDA comps, and how do you fix it?

023What non-recurring items do you add back to get 'clean' EBITDA, and what's the controversial one?

advanced

• If you add back SBC, what else must you adjust to be consistent? (Diluted share count trajectory)

024What is PIK interest and how does it flow through the three statements?

advanced

• Why would a sponsor choose a PIK toggle tranche?

025Company buys $100 of machinery, fully debt-funded at 6%, 10-year straight-line, 25% tax. Walk through purchase and end of year one.

advanced

• Now year 2, what changes and what stays the same?