Accounting Interview Questions

Below are real examples of the most common questions (and answers) used to hire accountants at banks, accounting firms, and corporations.

What are the most common accounting interview questions?

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 our our interview guides for finance, FP&A, equity research, and more.

Walk me through the 3 financial statements.

The balance sheet shows a company’s assets, its 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.

If I had only 1 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.

What happens on the income statement if inventory goes up by $10?

Nothing.  This is a trick question.

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).

What does 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.

If cash collected from customers is not recorded as revenue, what happens to it?

It usually goes into “Deferred Revenue” on the balance sheet.

What’s the difference between deferred revenue and accounts receivable?

Deferred revenue represents cash received customers for services or goods not yet provided.  Accounts receivable represents cash owing from customers for goods/services already provided.

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.

Under what circumstances does goodwill increase?

When a company buys another business for more than the fair value of its tangible and intangible assets.

How do you record PPE and why is this important?

There are essentially 4 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.

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 CFO as it’s a non-cash expense but must not be double counted in the changes of non-cash working capital.

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

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: