Common Finance Interview Questions (and Answers)

Finance interview questions to be ready for
Finance interview best practices
Finance interview questions: accounting

Finance interview questions to be ready for

With the start of a new academic year, we know that finance interviews are again at the forefront of many of your minds. Over the next few months, we’ll be publishing most frequently asked technical finance interview questions and answers across a variety of topics – accounting (in this issue), valuation, corporate finance – to get you prepared. If you're looking for interview prep resources beyond this article, be sure to take a look at our Interview Prep training package.

Before we get to accounting questions, here are some interview best practices to keep in mind when getting ready for the big day.
Get prepared for finance interview questions

Finance interview best practices

Be prepared for technical questions.

Many students erroneously believe that if they are not finance/business majors, then technical questions do not apply to them. On the contrary, interviewers want to be assured that students going into the field are committed to the work they’ll be doing for the next few years, especially as many finance firms will devote considerable resources to mentor and develop their new employees.

One recruiter we’ve spoken to said “while we do not expect liberal arts majors to have a deep mastery of highly technical concepts, we do expect them to understand the basic accounting and finance concepts as they relate to investment banking. Someone who can’t answer basic questions like ‘walk me through a DCF’ has not sufficiently prepared for the interview, in my opinion”.

Another added, “Once a knowledge gap is identified, it’s typically very difficult to reverse the direction of the interview.”

It’s ok to say “I don’t know” a few times during the interview. If interviewers think that you’re making up answers, they’ll continue probing you further.

Keep each of your answers limited to 2 minutes.

Longer answers may lose an interviewer, while giving them additional ammunition to go after you with more complicated question on the same topic.

It’s ok to say “I don’t know” a few times during the interview. If interviewers think that you’re making up answers, they’ll continue probing you further, which will lead to more creative answers, which will lead to more complicated questions and a slow realization by you that interviewer knows that you don’t really know. This will be followed by uncomfortable silence. And no job offer.

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Finance interview questions: accounting

Accounting is the language of business, so don’t underestimate the importance of accounting-related finance interview questions. Some are easy, some are more challenging, but of all of them allow interviewers to gauge your knowledge level without the need to ask more complex valuation/finance questions.Below we have selected most common accounting questions you should expect to see during the recruiting process.

Q: Why do capital expenditures increase assets (PP&E), while other cash outflows, like paying salary, taxes, etc., do not create any asset, and instead instantly create an expense on the income statement that reduces equity via retained earnings?

A: Capital expenditures are capitalized because of the timing of their estimated benefits – the lemonade stand will benefit the firm for many years. The employees’ work, on the other hand, benefits the period in which the wages are generated only and should be expensed then. This is what differentiates an asset from an expense.

Q: Walk me through a cash flow statement.

A. Start with net income, go line by line through major adjustments (depreciation, changes in working capital and deferred taxes) to arrive at cash flows from operating activities.

Mention capital expenditures, asset sales, purchase of intangible assets, and purchase/sale of investment securities to arrive at cash flow from investing activities.
Mention repurchase/issuance of debt and equity and paying out dividends to arrive at cash flow from financing activities.
Adding cash flows from operations, cash flows from investments, and cash flows from financing gets you to total change of cash.
Beginning-of-period cash balance plus change in cash allows you to arrive at end-of-period cash balance.

Q: What is working capital?

A: Working capital is defined as current assets minus current liabilities; it tells the financial statement user how much cash is tied up in the business through items such as receivables and inventories and also how much cash is going to be needed to pay off short term obligations in the next 12 months.

Q: Is it possible for a company to show positive cash flows but be in grave trouble?

A: Absolutely. Two examples involve unsustainable improvements in working capital (a company is selling off inventory and delaying payables), and another example involves lack of revenues going forward in the pipeline.

Q: How is it possible for a company to show positive net income but go bankrupt?

A: Two examples include deterioration of working capital (i.e. increasing accounts receivable, lowering accounts payable), and financial shenanigans.

Q: I buy a piece of equipment, walk me through the impact on the 3 financial statements.

A: Initially, there is no impact (income statement); cash goes down, while PP&E goes up (balance sheet), and the purchase of PP&E is a cash outflow (cash flow statement)

Over the life of the asset: depreciation reduces net income (income statement); PP&E goes down by depreciation, while retained earnings go down (balance sheet); and depreciation is added back (because it is a non-cash expense that reduced net income) in the cash from operations section (cash flow statement).

Q: Why are increases in accounts receivable a cash reduction on the cash flow statement?

A: Since our cash flow statement starts with net income, an increase in accounts receivable is an adjustment to net income to reflect the fact that the company never actually received those funds.

Q: How is the income statement linked to the balance sheet?

A: Net income flows into retained earnings.

Q: What is goodwill?

A: Goodwill is an asset that captures excess of the purchase price over fair market value of an acquired business. Let’s walk through the following example: Acquirer buys Target for $500m in cash. Target has 1 asset: PPE with book value of $100, debt of $50m, and equity of $50m = book value (A-L) of $50m.

Acquirer records cash decline of $500 to finance acquisition
Acquirer’s PP&E increases by $100m
Acquirer’s debt increases by $50m
Acquirer records goodwill of $450m

Q: What is a deferred tax liability and why might one be created?

A: Deferred tax liability is a tax expense amount reported on a company’s income statement that is not actually paid to the IRS in that time period, but is expected to be paid in the future. It arises because when a company actually pays less in taxes to the IRS than they show as an expense on their income statement in a reporting period.

Differences in depreciation expense between book reporting (GAAP) and IRS reporting can lead to differences in income between the two, which ultimately leads to differences in tax expense reported in the financial statements and taxes payable to the IRS.

Q: What is a deferred tax asset and why might one be created?

A: Deferred tax asset arises when a company actually pays more in taxes to the IRS than they show as an expense on their income statement in a reporting period.

Differences in revenue recognition, expense recognition (such as warranty expense), and net operating losses (NOLs) can create deferred tax assets.

I hope you enjoyed this article and found these finance interview questions hepful. Please feel free to add any comments or recommendations in the comments section below.

Good luck in your interview!

Comments

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deewakar jha

Dear sir, I am pursuing my MBA in finance and currently in second year and the placements are on the doorstep. I request you to keep publishing these kind of articles along with I think, if you will write on how to answer the questions related to the resume, which… Read more »

Dharmesh

Respected sir,
I have completed my MBA in HR and FINANCE .I don't know the whats types of questions asked in the finance interview.
Please tell me sir.

Sven

Q: I have a question of how to calculate net debt when there are derivatives used. Here is the information published by the company on it's balance sheet: Short term borrowing 1,200 Long term borrowing 6,700 Cash and marketable securities 800 But then in a different part of the report… Read more »

Rohit Sharma

Can you please provide me bunch of questions that usually ask at the time of interview.

Tijjani Kachallah

Epic article and love the prompt answers given to questions asked.

Ayushi

Nice article!!

Al-mamun

sir,at first take my salam. Sir i can't answer properly in viva question about finance.Although finance was major in my BBA programmer.what kind of question comes from basic finance. sir please suggest me,,which question can i follow, have you any fdf file "the basic question about finance in viva "… Read more »

Opubor Efemena

This was very helpful. Thank you very much.

Venu kumar

Thank you it must be useful

Shaikh Qutuboddin

Hello Sir/Madam, My self Shaikh Qutuboddin, am an MBA grad in Finance also am working as finance and accounts executive in a Multinational Corporationsin Audit, Reconciliation, Revenue and Disbursement Statement preparation so am looking for a job in Financial Planning and Analyst, please advice me what should i prepare for… Read more »

govardhan

superb

Anil kumar

Really it was very good but provide in pdf.

Bagcagul

Really interesting article. Thanks!

lava kumar

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PEACE CHIMEZIE

Epic Article. Most interesting article read.

Ashwini

It's really useful.......... thanks

Clotilda

This is good and helpful

Anup Mondal

Thanks.
Perfect articles.

BHAGWAN PEDANEKAR

THANK YOU SIR

Hiren

Nice article!

Anshu Kumari

Can you explain this question in more detail :-
Q: Is it possible for a company to show positive cash flows but be in grave trouble?

Anand M K

Thank you so much for the article Sir! Really appreciate a lot. This made my confidence boosted as I was searching for Finance Questions to be asked by the interviewer. Really thanks once again Sir.

Maphuti seleka

I’m having interview at tax worx and I don’t know what type of questions I will be asked and it’s been 2years since I did accounting and this will be my 1st internship after my N6 achievement in financial management.

tayyaba

thanks a lot

vishnu

Thank you

If you buy a Current Asset for $100 how does it flow through the three financial statements?

Is this the same answer as buying equipment?

vishnu

dear sir
in an pantnership firm the previous expenses paid in current year and it would in previous as payable. now the amount is paid then what will be the entries
plz give me a answer

Carlos Esqueda

Thank you!! 🙂

K Masthan

Please send some short tips for Basic Of Accounts Interview questions

Ganesh

thank you

Christha

Thank you so much. 🙂

Zulaikha Madina Zahari

Thank you. This helped me so much.

Akinwunmi zainab

Hi,

pls sir wats d link to join if i want to get basic accounting questions nd your update

Allan

thanks for your question and answers, it has help me improve my project issues about financial system assignment

Raymond

Are you sure these are the most common questions?

sonu

thank u

SHWETA PATIL

Hello Sir I have a doubt in goodwill calculation, like goodwill it is reputation of company, then also we will treat it asset and keep in balance sheet with measuring in amount so how you calculate in amount.
can i get explanation.

Romya Ranjan Dash

Precise and informative points for job seekers.

Pounraj

Thanks, hope it's useful for my interviews

Naveed

Precise and clear answers.

Narayana

Very Informative and well written.

Thank You

AMIT

"well explained answers in short way"
Thanks

AMIT

THANKS SIR

vijay

Thanx sir and my help in english speeking in job intarview

mounuddin ansari

it's really precise and understandable ans.
thank u sir

Shweta

Thank you sir.

Shweta

Very Informative and well written. Thank You!

mamta sharma

thnk u sir for the efforts u had made for the interseted readers with proper explaination of the important topics

Vijay Gowda

All are use full questions & Answers. Thank u

AMI

Like Rohit Sharma I am also in need of many more such Q&A to help me in my upcoming interviews.
I don't know how to contact IBD for mock interviews. So in the interim your prompt help in providing many more such Q&A will be helpful.

Pervez

Short & simple & more helpful.
Thank you.

Ambarin Anwar

Very informative article. Its going to be of very great help in my preparations for upcoming interviews.

Mamatha

I had been searchIng for basics to prepare myself for interview. I'm glad your article helped me .

VIJAY PATIDAR

Short and Sweet. Very helpful.

Abdeleah Alqahtani

Thank you very much for those informative answers.

adefioye emmanuel olushola

Good evening,I finished my ond in banking and finance 2007,I have been into music since then till now I play lead guitar and little on keyboard,I have forgotten everything on d course I study for 3years and I was called for and interview and I don't even know what to… Read more »

Byju Subhash

This was really helpful. Thanks a lot!

chaitanya

hi
this is very good.
it is very simple and clear.
thank you

Jeanica

I really appreciate your answers!! Its very useful!! Thank u!

Kamal

Hi,

Can you provide me resource or database, which contains similar types of questions. Liked these set of questions.

Regards

kanthi shanmugamnathan

yes, i enjoyed this article....hope it ll b useful for my interviews......
thank you.

pradeep shah

this question is really very helpful but sir please include some case study type question and please add some term and financial word because if interviewer ask some financial word and we all read but on that we forget or not prepare financial term. if you add next time this… Read more »

Ssaurabh vashistt

Very helpful thing......Thanks for this and must say that plz add more questions in it so that we can grab the knowledge......... or plz share the site or any link where we can grab the knowledge of finance.

devaraj .j

very smart answers thank you it is useful for my life

Nehal

Hi,

Thank you so much for sharing the knowledge

Khoshali

Very helpful.. Hoping for more posts like this!

Asif Hossain

Thank you!

Mustaq

Dear Sir/Madam

Please send some short tips for Basic Of Accounts Interview

Thanks

Yesha Patel

Very useful set of questions and answers. Would be great if you kindly forward many more on my personal mail Id as I am preparing for my placements.

Katie Roszik

That was a great article with lots of useful information I really enjoyed reading it, thanks so much

Deepeksha

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prashanth dev

Very much useful questions really to say ..was help full kindly add some more questions like this so that it can be helpful for many who really refer this path ..

Surya Tej Singh

Excellent information..it cleared many of my doubts.thank u

salih

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mercy

thanks. this was very educative.

shiavm divedi

very important knowledge. thank you sir.........

santosh kumar

It is very helpful for the people and keep doing it.

Jesofa

These questions are really good. They are essential things to know in financial reporting. Thanks for helping, would practice repeatedly.

Suzy Anna

Hi,
It is very very useful continue with the spirit.
And thank

Brett

I've read this article over before several of my interviews and it was extremely helpful.

Thank you!

Md. robiul Islam

Many Many Thanks !

kumaras

It's really Good.. i enjoyed it... Thanks..

yousuf

nice job, thanks

Johannes Aphane

This is great. thanks

sathish

Thank you verymuch these basic financial qustions are very hellped me good jo ....

Pawan

This article is very useful specifically for people who are looking for hard core accounting job. Request you to please provide some interview Q/A and tips for MBA Finance people who are looking job other than hard core accounting job. Thanks.

jyoti kshirsagar

Wow....thankuu so muchhhh....i ws so helpful

Priya

Your article given more information and my suggestion is you can add little more information

Aks

That was a very helpful quick recap of the accounting section.
But where are questions from Valuation and corporate finance?

v.Mithilesh

it's like refreshing the entire degree subj............ use full for us.......

Muhammad Aslam

Massive information.thanks ..........

manoj

Financial question and answer is very much useful for me......

k.lalitha

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ashok

Thanks it's very helpful. Generally when we go for interview we usually receive a set a pratical Q and then asked to solve. Can u pls help us with such Q.