We’ve compiled the most frequently asked accounting interview questions along with what we believe are the best answers. The key to acing an interview is practice, so be sure to check out our interview guides for finance, FP&A, equity research, and more.
List of commonly asked accounting interview questions:
#1 Walk me through the three financial statements.
The balance sheet shows a company’s assets, liabilities, and shareholders’ equity. The income statement outlines the company’s revenues and expenses. The cash flow statement shows the cash flows from operating, investing, and financing activities.
#2 If I had only one statement and wanted to review the overall health of a company, which statement would I use and why?
Cash is king. The cash flow statement gives a true picture of how much cash the company is generating. That being said, it’s important to note that all three statements truly are required to get a full picture of the health of a company. Learn more about how the three financial statements are linked.
#3 What happens on the income statement if inventory goes up by $10?
Nothing. This is a trick question. The only impact will be on the balance sheet and cash flow statement.
#4 What is working capital?
Working capital is typically defined as current assets less current liabilities. In banking, working capital is normally defined more narrowly as current assets (excluding cash) less current liabilities (excluding interest-bearing debt).
#5 What does having negative working capital mean?
Negative working capital is common in some industries, such as grocery retail and the restaurant business. For a grocery store, customers pay upfront, inventory moves relatively quickly, but suppliers often give 30 days (or more) credit. This means that the company receives cash from customers before it needs the cash to pay suppliers. Negative working capital is a sign of efficiency in businesses with low inventory and accounts receivable. In other industries, negative working capital may signal a company is facing financial trouble.
#6 If cash collected from customers is not yet recorded as revenue, what happens to it?
It usually goes into “Deferred Revenue” on the balance sheet as a liability if the revenue has not been earned yet.
#7 What’s the difference between deferred revenue and accounts receivable?
Deferred revenue represents cash received from customers for services or goods not yet provided. Accounts receivable represents cash owing from customers for goods/services already provided.
#8 When do you capitalize rather than expense a purchase?
If the purchase will be used in the business for more than one year, it is capitalized and depreciated.
#9 Under what circumstances does goodwill increase?
When a company buys another business for more than the fair value of its tangible and intangible assets, goodwill is created.
#10 How do you record PP&E and why is this important?
There are essentially four areas to consider when accounting for PP&E on the balance sheet: initial purchase, depreciation, additions (capital expenditures), and dispositions. In addition to these four, you may also have to consider revaluation. For many businesses, PP&E is the main capital asset that generates revenue, profitability, and cash flow.
#11 How does an inventory write-down affect the three statements?
On the balance sheet, the asset account of inventory is reduced by the amount of the write-down, and so is shareholders’ equity. The income statement is hit with an expense in either COGS or a separate line item for the amount of the write-down, reducing net income. On the cash flow statement, the write-down is added back to operating cash flows as it’s a non-cash expense but must not be double-counted in the changes of non-cash working capital.
#12 What are three examples of common budgeting methods?
#13 Please explain the Revenue Recognition and Matching principles
The revenue recognition principle dictates the process and timing by which revenue is recorded and recognized as an item in the financial statements based on certain criteria (e.g., transfer of ownership). The matching principle dictates that the timing of expenses be matched to the period in which they are incurred, as opposed to when they are actually paid.
#14 If you were CFO of our company, what would keep you up at night?
Step back and give a high-level overview of the company’s current financial position, or companies in that industry in general. Highlight something on each of the three statements. Income statement: growth, margins, profitability. Balance sheet: liquidity, capital assets, credit metrics, liquidity ratios. Cash flow statement: short-term and long-term cash flow profile, any need to raise money or return capital to shareholders.
More Interview Prep
Thank you for reading CFI’s guide to accounting interview questions. If you want to land the accounting job of your dreams then interview prep is key. That’s why we’ve designed special guides to help you prepare with practice questions and answers.
More interview guides you will find helpful include: