Interview questions
Investment banking accounting interview questions
Accounting questions test whether you understand how a company's numbers fit together. Expect three kinds: definitions (what deferred revenue is), how the three statements link, and walk-throughs, where one line item changes and you trace the effect through the income statement, the cash flow statement and the balance sheet. Below are 24 common ones, each with a short answer and the mistake to avoid.
Going deeper: How to answer “Walk me through the three financial statements”, with a script and a worked example.
Which accounting questions should you know?
The 24 below are free in Superday Room, each with a short answer, the mistake to avoid and a target time out loud.
- Walk me through the 3 financial statements.
- Give me examples of major line items on each of the three financial statements.
- How do the 3 statements link together?
- What are the criteria for an item to appear on the Income Statement?
- Name items that never appear on the Income Statement, and explain why.
- What's the difference between an Asset and a Liability?
- Why might a company's Net Income differ from its cash flow?
- Explain the three sections of the Cash Flow Statement and why the 'current vs. long-term' rule of thumb isn't fully accurate.
- What's the difference between Accounts Payable and Accrued Expenses?
- What is Deferred Revenue, and is it an asset or a liability?
- What are Goodwill and Other Intangible Assets, and how do they differ?
- What is Treasury Stock and what is Common Stock and APIC?
- What is a Deferred Tax Liability?
- Depreciation goes up by $10. Walk me through the three statements. Assume a 40% tax rate.
- Accounts Receivable goes up by $100. Walk me through the statements, 40% tax rate.
- Prepaid Expenses goes down by $100. What happens on the statements? 40% tax rate.
- Inventory goes up by $100, paid for in cash, and the tax rate is 40%. What happens on the statements, and what happens when that Inventory goes down by $100 because it's sold?
- Accrued Expenses goes up by $100. Walk me through it, 40% tax rate.
- Deferred Revenue decreases by $100. Walk me through the statements at a 40% tax rate.
- Stock-Based Compensation goes up by $10. What happens, 40% tax rate?
- A company raises $100 of debt and uses it to buy $100 of PP&E. Walk me through the statements.
- A company sells PP&E with a book value of $100 for $120. Walk me through the statements at 40% tax.
- The company issues $10 in dividends. What happens on the statements?
- Why does the Revolver show up in Cash Flow from Financing even though it's a current liability?
What do the three statements show?
The basics: what each statement shows, how they connect, and the terms that come up with them.
Walk me through the 3 financial statements.
The income statement shows revenue, expenses and net income over a period, such as a quarter or a year. The balance sheet is a snapshot at one point in time: assets on one side, liabilities and shareholders' equity on the other, and assets always equal liabilities plus equity. The cash flow statement starts with net income, adds back non-cash charges such as depreciation, adjusts for changes in working capital to get cash flow from operations, then adds cash flow from investing and from financing to reach the net change in cash.
Common mistake: Describing the balance sheet as covering a period. It's a snapshot at a single date; the income statement and the cash flow statement cover the period.
Likely follow-up: How do the three statements link together?
Full guide: how to answer “Walk me through the three financial statements”
Give me examples of major line items on each of the three financial statements.
Income statement: revenue, cost of goods sold, SG&A, operating income, interest expense, taxes and net income. Balance sheet: cash, accounts receivable, inventory and PP&E on the asset side; accounts payable, accrued expenses and debt on the liability side; then shareholders' equity, including common stock and retained earnings. Cash flow statement: net income, D&A, stock-based compensation and working-capital changes in operations; CapEx and buying or selling investments in investing; issuing or repaying debt, issuing or buying back shares, and dividends in financing.
Common mistake: Putting balance sheet or cash flow items on the income statement. Inventory, CapEx and dividends are not income statement lines.
How do the 3 statements link together?
Net income from the income statement is the first line of the cash flow statement. The cash flow statement adds back non-cash charges such as D&A and stock-based compensation, reflects changes in operating balance sheet items (working capital), then adds investing and financing flows to get the net change in cash. Beginning cash plus that change gives ending cash, which becomes the cash line on the balance sheet. Net income also flows into retained earnings within shareholders' equity, less any dividends, and items such as D&A, CapEx and new debt update PP&E and debt, so the balance sheet still balances.
Common mistake: Saying net income flows to the top of the balance sheet. It goes to the top of the cash flow statement and into retained earnings.
Likely follow-up: Depreciation goes up by $10. Walk me through the three statements.
What are the criteria for an item to appear on the Income Statement?
Interviewers look for two tests. The item must belong only to the period shown, and it must affect the company's taxable income as reported on its statements. That is why interest expense appears (it's tax-deductible) while repaying debt principal and paying dividends don't. CapEx fails the first test: a machine that lasts ten years is expensed gradually through depreciation rather than all at once. It's a rule of thumb, not an accounting standard, but it settles most "does this hit the income statement?" questions.
Common mistake: Saying CapEx hits the income statement when the asset is bought. It sits in investing on the cash flow statement and reaches the income statement over time through depreciation.
Name items that never appear on the Income Statement, and explain why.
CapEx and other purchases or sales of PP&E and investments; issuing or repaying debt principal; issuing or buying back shares; dividends; and changes in balance sheet items such as accounts receivable or inventory. Each fails one of the two tests: dividends, debt principal and share issuance don't affect taxable income, and CapEx buys an asset used over many periods, so it reaches the income statement only through depreciation.
Common mistake: Saying dividends are tax-deductible or appear on the income statement. They reduce retained earnings and show up in cash flow from financing.
What's the difference between an Asset and a Liability?
An asset will bring in cash, or save cash, in the future, directly or indirectly: cash itself, receivables, inventory, equipment. A liability will cost the company cash in the future and is usually owed to outside parties: payables, accrued expenses, debt, deferred revenue. Equity is the other source of funding: the owners' claim, including the earnings the company has kept.
Common mistake: Calling deferred revenue an asset because cash came in. The cash is the asset; the obligation to deliver is the liability.
Why might a company's Net Income differ from its cash flow?
Three reasons. Non-cash expenses such as depreciation, amortization and stock-based compensation reduce net income but not cash. Accrual timing: revenue and expenses are recorded when they are earned or incurred, not when cash moves, which shows up in receivables, payables, accrued expenses and deferred revenue. And some cash flows never touch the income statement at all: CapEx, dividends, and raising or repaying debt and equity.
Common mistake: Saying depreciation generates cash. It's non-cash; its only cash effect is the lower tax bill.
Explain the three sections of the Cash Flow Statement and why the 'current vs. long-term' rule of thumb isn't fully accurate.
Operating: net income, non-cash adjustments and changes in operating assets and liabilities. Investing: CapEx, acquisitions, and buying or selling investments and PP&E. Financing: debt raised or repaid, shares issued or repurchased, and dividends. The rule of thumb says current items go in operations and long-term items in investing or financing, but there are exceptions: long-term deferred revenue still belongs in operations, short-term investments are current but go in investing, and the revolver is a current liability that goes in financing.
Common mistake: Putting CapEx in operations, or depreciation in investing. CapEx is an investing outflow; D&A is a non-cash add-back in operations.
What's the difference between Accounts Payable and Accrued Expenses?
Both are liabilities for expenses already recorded on the income statement but not yet paid in cash. Accounts payable usually covers specific, invoiced items, such as a supplier bill or a one-off legal fee. Accrued expenses cover recurring costs that build up before an invoice or payment, such as wages, utilities or rent between pay dates. The cash flow effect is the same: an increase in either adds to cash flow from operations.
Common mistake: Calling accounts payable or accrued expenses assets. Both are liabilities.
What is Deferred Revenue, and is it an asset or a liability?
Deferred revenue is cash collected in advance for products or services the company hasn't delivered yet, such as an annual software subscription paid up front. It's a liability, because the company still owes the customer that product or service and may have to refund the money if it can't deliver. As it delivers, the company moves the amount out of deferred revenue and recognizes it as revenue on the income statement.
Common mistake: Calling it an asset because the company received cash, or leading with taxes. The main reason it's a liability is the obligation to deliver.
What are Goodwill and Other Intangible Assets, and how do they differ?
Both come mostly from acquisitions. Other intangible assets are identifiable items such as patents, trademarks, customer relationships and technology; they're valued separately and amortized over their useful lives, unless their lives are indefinite. Goodwill is what's left of the purchase price after it has been allocated to all the identifiable net assets at fair value: the premium the buyer paid on top of them. Under US GAAP, goodwill isn't amortized; it's tested for impairment at least once a year. Private companies can elect to amortize it over ten years or less.
Common mistake: Saying goodwill is amortized like other intangibles. Public companies test it for impairment instead.
What is Treasury Stock and what is Common Stock and APIC?
Common stock and additional paid-in capital (APIC) record what investors paid when the company issued its shares. Treasury stock records the cumulative cost of shares the company has bought back; it's a contra-equity account, shown as a negative within shareholders' equity. None of them change when the share price moves afterwards.
Common mistake: Calling treasury stock an asset, or saying common stock and APIC move with today's share price.
What is a Deferred Tax Liability?
A deferred tax liability means the company has paid less cash tax so far than the tax expense on its income statement implies, because of a temporary difference between book and tax accounting. The classic cause is accelerated depreciation for tax purposes with straight-line depreciation in the financial statements. The company will pay more cash tax later, when the difference reverses.
Common mistake: Saying a DTL means the company has paid more tax than it owes. It has paid less so far and will pay more later.
How do you walk a change through the three statements?
Start with the income statement, move to the cash flow statement, finish on the balance sheet, and check that it balances.
Depreciation goes up by $10. Walk me through the three statements. Assume a 40% tax rate.
Income statement: operating income falls $10; at a 40% tax rate, net income falls $6. Cash flow statement: net income is down $6, but you add back the full $10 of depreciation because it's non-cash, so cash is up $4, which is the tax saving. Balance sheet: cash up $4 and PP&E down $10, so total assets fall $6; on the other side, retained earnings fall $6 with net income. Both sides are down $6, so it balances.
Common mistake: Saying cash falls $10, or adding back only the after-tax $6. You add back the full $10; the $4 increase in cash is the tax shield.
Likely follow-up: What if the depreciation were only for tax purposes and not on the books?
Accounts Receivable goes up by $100. Walk me through the statements, 40% tax rate.
Assume the $100 is revenue recorded on credit and taxes are paid in cash. Income statement: revenue and pre-tax income up $100, net income up $60. Cash flow statement: net income up $60, minus the $100 increase in accounts receivable, so cash is down $40: the company paid tax on revenue it hasn't collected yet. Balance sheet: cash down $40 and AR up $100, so assets are up $60; retained earnings are up $60.
Common mistake: Saying cash goes up because revenue went up. An increase in an operating asset like AR reduces cash flow.
Prepaid Expenses goes down by $100. What happens on the statements? 40% tax rate.
A drop in prepaid expenses means an expense the company paid for earlier is now recognized. Income statement: expenses up $100, pre-tax income down $100, net income down $60. Cash flow statement: net income down $60, plus the $100 decrease in prepaid expenses (a falling asset adds to cash), so cash is up $40. Balance sheet: cash up $40 and prepaid expenses down $100, so assets fall $60; retained earnings fall $60.
Common mistake: Saying cash falls $100 now. The cash left when the expense was prepaid.
Inventory goes up by $100, paid for in cash, and the tax rate is 40%. What happens on the statements, and what happens when that Inventory goes down by $100 because it's sold?
Buying $100 of inventory with cash: nothing on the income statement. On the cash flow statement, the $100 increase in inventory reduces cash flow from operations; on the balance sheet, cash falls $100 and inventory rises $100, so total assets don't change. Selling it: the $100 becomes cost of goods sold. Looking only at that cost at 40% tax, net income falls $60, the $100 decrease in inventory is added back on the cash flow statement, cash rises $40, inventory falls $100 and retained earnings fall $60. In practice the sale also brings in revenue, so ask the interviewer whether to include it.
Common mistake: Putting the inventory purchase on the income statement. Inventory only reaches the income statement as COGS when it's sold.
Accrued Expenses goes up by $100. Walk me through it, 40% tax rate.
An expense is recorded but not yet paid, like wages earned before payday. Income statement: pre-tax income down $100, net income down $60. Cash flow statement: net income down $60, plus the $100 increase in accrued expenses (a rising liability adds to cash), so cash is up $40. Balance sheet: cash up $40 on the asset side; accrued expenses up $100 and retained earnings down $60, so liabilities plus equity are up $40.
Common mistake: Saying cash falls $100. Nothing has been paid yet, so cash rises by the $40 tax saving.
Deferred Revenue decreases by $100. Walk me through the statements at a 40% tax rate.
The company delivers something it was paid for earlier. Income statement: revenue and pre-tax income up $100, net income up $60. Cash flow statement: net income up $60, minus the $100 decrease in deferred revenue (a falling liability reduces cash), so cash is down $40: the tax on revenue whose cash arrived in an earlier period. Balance sheet: cash down $40; deferred revenue down $100 and retained earnings up $60, so both sides fall $40.
Common mistake: Saying cash rises $100. The cash came in when the customer prepaid.
Stock-Based Compensation goes up by $10. What happens, 40% tax rate?
Income statement: operating income down $10, net income down $6. Cash flow statement: net income down $6, then add back the $10 of stock-based compensation because it's non-cash, so cash is up $4. Balance sheet: cash up $4; in equity, common stock and APIC rise $10 for the shares granted and retained earnings fall $6, so equity is up $4 and it balances.
Common mistake: Treating stock-based compensation as a cash expense. It's non-cash, although it dilutes existing shareholders.
A company raises $100 of debt and uses it to buy $100 of PP&E. Walk me through the statements.
Nothing hits the income statement at the moment of the transaction. Cash flow statement: CapEx of –$100 in investing and +$100 of debt issued in financing, so cash doesn't change. Balance sheet: PP&E up $100 and debt up $100, so both sides rise $100. Over time the PP&E is depreciated and the debt accrues interest, and both reduce net income: that's the usual follow-up.
Common mistake: Saying the debt or the purchase hits the income statement right away. Only depreciation and interest do, later.
Likely follow-up: Now walk me through year one, with depreciation and interest.
A company sells PP&E with a book value of $100 for $120. Walk me through the statements at 40% tax.
Income statement: a $20 gain on sale, so pre-tax income rises $20 and net income $12. Cash flow statement: net income up $12; subtract the $20 gain in operations, because the full sale proceeds are shown in investing; then add the $120 of proceeds in investing. Net change in cash: +$112. Balance sheet: cash up $112 and PP&E down $100, so assets are up $12; retained earnings are up $12.
Common mistake: Counting the gain twice: leaving the $20 in operations and also adding the full $120 in investing.
The company issues $10 in dividends. What happens on the statements?
No income statement effect: dividends are a distribution of profit, not an expense, and they aren't tax-deductible. Cash flow statement: –$10 in financing. Balance sheet: cash down $10 and retained earnings down $10, so both sides fall $10.
Common mistake: Putting dividends on the income statement or treating them as tax-deductible.
Why does the Revolver show up in Cash Flow from Financing even though it's a current liability?
Because the cash flow statement classifies cash by what it's for, not by when the item matures. A revolver is a short-term credit line the company draws on and repays, like a corporate credit card, and those draws and repayments are decisions about how the company funds itself. That makes them financing activity. "Current items go in operations" is only a rule of thumb.
Common mistake: Putting revolver draws in operations because the revolver is a current liability.
How do you answer any walk-through question?
Every "X goes up by $10, walk me through the statements" question has the same shape. Go in this order and say each step out loud:
- Income statement. Does the change hit revenue or an expense? If so, find the pre-tax change and multiply by (1 – tax rate) for net income. Interviewers usually give a tax rate; 40% and 25% are common.
- Cash flow statement. Start from the change in net income, add back non-cash items, then adjust for the working-capital change: an increase in an operating asset reduces cash; an increase in a liability adds to it. Add any investing or financing flows.
- Balance sheet. Cash moves by the net change from the cash flow statement; then update the asset or liability that changed, and retained earnings by the change in net income.
- Check that it balances. Say it: "Assets are down $6, and liabilities plus equity are down $6, so it balances."
Two facts to anchor on. The balance sheet shows a company's position "at a fixed point in time", while the income statement covers revenue and expenses over a period, as the SEC's beginner's guide to financial statements puts it. And under US GAAP, goodwill isn't amortized: it's tested for impairment at least once a year, although private companies can elect to amortize it over ten years or less.
Which firms ask these questions?
In Superday Room's bank, candidates reported 208 accounting questions from interviews at 35 named firms. The firms with the most reports: Evercore (33), Moelis & Co. (21), Bank of America (12), Morgan Stanley (11), Barclays (10) and Guggenheim Partners (10). These are candidates' reports, counted November 1, 2026. Questions by firm →
Superday Room's full bank has more than 300 accounting questions. The 24 on this page are free to practice out loud; the rest come with the Recruiting Season Pass.
Sources
- U.S. Securities and Exchange Commission, “Beginners' Guide to Financial Statements”.
- Deloitte Accounting Research Tool, “History of the Goodwill Impairment Model and Related Standard-Setting Activity (ASC 350-20, §1.2)”.