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- Finance interview questions to be ready for
- Finance interview best practices
- Finance interview questions: accounting
- 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?
- Q: Walk me through a cash flow statement.
- Q: What is working capital?
- Q: Is it possible for a company to show positive cash flows but be in grave trouble?
- Q: How is it possible for a company to show positive net income but go bankrupt?
- Q: I buy a piece of equipment, walk me through the impact on the 3 financial statements.
- Q: Why are increases in accounts receivable a cash reduction on the cash flow statement?
- Q: How is the income statement linked to the balance sheet?
- Q: What is goodwill?
- Q: What is a deferred tax liability and why might one be created?
- Q: What is a deferred tax asset and why might one be created?
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.
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.
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!
lava kumar
nice
PEACE CHIMEZIE
Epic Article. Most interesting article read.
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 it says:
Net debt of the company at year end was $6,850 million being total debt of $7,900 million less cash and marketable securities of $800 million and the $250 million fair value of derivative instruments utilized as a hedge on the Group’s interest bearing liabilities.
Q: What is the correct net debt figure? Is it 6,850 or should it be 1,200+6,700-800=7,100?
Haseeb Chowdhry
Sven,
If the company believes these derivative positions can readily be exchanged for cash, that’s fine, but typically I haven’t seen the fair value of derivatives included within the net debt calculation. I would stick with our definition of cash and equivalents, which typically includes Cash, ST investments and LT investments. Hope this helps – thanks.
Best,
Haseeb
Sven
Thanks Haseeb, that’s very helpful. For what it’s worth the company says the derivatives are interest rate swaps so I guess the fair value will change as interest rates change. To be conservative, I guess it makes sense to ignore the derivative positions as you have suggested.
Sven
Haseeb Chowdhry
I agree with your approach – thanks.
– Haseeb
Ashwini
It’s really useful………. thanks
Clotilda
This is good and helpful
Anup Mondal
Thanks.
Perfect articles.
BHAGWAN PEDANEKAR
THANK YOU SIR
Ayushi
Nice article!!
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?
Haseeb Chowdhry
Anshu,
The point of this question is to demonstrate that there are other potential issues that a company can mask. If it’s just shedding old inventory, or booking many more payables, or it has a horrible sales retention rate and there’s significant change of loss in sales going forward, these are all signs of a company in grave trouble, despite currently managing its cash flow.
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.
Haseeb Chowdhry
Maphuti,
I apologize but this website cannot ask specific questions about interviews at certain companies. What I would suggest, generally, is that you review tax accounting concepts and do some research on the type of work this company focuses on. Hope this helps!
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
Haseeb Chowdhry
What is the specific current asset? Is it inventory? The answer will be very different from buying equipment. Let’s run through a purchase of inventory:
1) Buying Inventory
Debit: Inventory
Credit: Cash
Inventory then sits on the balance sheet until it is recognized as a Cost of Goods Sold per the matching principle.
2) Recognizing COGS
Debit: COGS
Credit: Inventory
Let me know if you have any additional questions – thanks!
Hashmat faqiri
Dear sir: I have interview in Finance and banking and I need your help that how to prepare myself for it. Method of questions.
PJ Usak
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?
Haseeb Chowdhry
Al Mamun,
Typically basic finance questions talk about your background, why you want to work in finance, and why you want to work in a specific investment bank. If you can answer all of those questions properly, that’s a good start to acing the qualitative portion of the finance interview. Let me know if you have any specific questions – more than happy to help – thanks!
Best,
Haseeb
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 ” please help me sir.
Opubor Efemena
This was very helpful. Thank you very much.
vishnu
sir,
sorry for the question actually my doubt is a firm’s expenses (2016) they not accounted that year then the next year they paying cash to that party then what will be the entry
plz help
vishnu
Dear sir
if the company not disclosing a expense rs.5000 for the date 01-03-2016 (the expenses not accounting in that year)
and the payment to made to that party on 01-05-2017 through bank. then how will it shown ( the expenses is for past year)
and i am really sorry to disturbing you
with regards
vishnu
Haseeb Chowdhry
Hashmat,
Have you looked into our Technical Finance Prep online course? That course does a great job of covering all topics expected during interviews, in detail. Thanks!
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
Haseeb Chowdhry
Vishnu,
I think you are describing an accrued expense, so when you recognize the expense, the journal entry would be the following:
1) Debit – Expense
2) Credit – Accrued Expense (Liability)
When cash is used to pay the expense, this would be the following entry:
1) Debit – Accrued Expense (Liability)
2) Credit – Cash
Hope this helps – thanks!
Haseeb Chowdhry
Vishnu,
Are you referring to accrued expenses? Accrued expenses typically arise when a company has to declare expenses before actually paying them out in cash. Think of this example – a company’s employees get paid every 2nd and 4th Thursday, but the company has to disclose the expenses not paid in cash in a given period to close the books for the period. Let me know if you need any additional clarification – thanks!
Best,
Haseeb
Haseeb Chowdhry
Vishnu,
If you are following accrual accounting you need to ensure that expense is recognized as an accounts payable – and then you are just paying down the accounts payable. When you say expense, is it an expense related to a supply purchase. If so, the COGS would have already been recognized if you sold those goods. This pertains to you paying back a supplier a year later, in which you would have booked a payable at the time you initially purchased the supplies last year. Hope this helps.
Haseeb
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. 🙂
Haseeb Chowdhry
Great!
Haseeb Chowdhry
From our discussions with investment banks and prospective candidates, we’ve made a concerted effort to cover the most common questions asked. Thanks!
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
Haseeb Chowdhry
Shweta,
Goodwill arises when a company pays above the fair market value of the net assets of a target company in an M&A situation. It is an asset that counts for how much the acquirer “overpaid” for the target. I hope this helps – thanks!
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.
Haseeb Chowdhry
Thank you!
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
Haseeb Chowdhry
Thanks!
mounuddin ansari
it’s really precise and understandable ans.
thank u sir
Haseeb Chowdhry
Ramesh,
Please reach out to support@wallstreetprep.com for this request – thanks!
Haseeb
Shweta
Thank you sir.
RAMESH Chauhan
Want to connect directly for more interviews questions and answers
Shweta
Very Informative and well written. Thank You!
Haseeb Chowdhry
Thanks!
mamta sharma
thnk u sir for the efforts u had made for the interseted readers with proper explaination of the important topics
Haseeb Chowdhry
Stay tuned for more content online, but I encourage you to also visit http://www.wallstreetoasis.com for additional interview content.
Vijay Gowda
All are use full questions & Answers. Thank u
Haseeb Chowdhry
Thanks!
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.
Haseeb Chowdhry
Rohit – I would reach out to peers who are currently working in IBD and conduct mock interviews with them – that’s the best approach!
Pervez
Short & simple & more helpful.
Thank you.
Haseeb Chowdhry
No problem – thanks!
Rohit Sharma
Can you please provide me bunch of questions that usually ask at the time of interview.
Haseeb Chowdhry
Deewakar – there are a lot of good resources to focus on MBA interview prep – please check them out – we are focused on IBD training specifically so we can’t promise we’ll write content in line with MBA interview prep. Hope this helps!
tajamul hussain
i am going to appear in junior executive finance interview, what are the possible questions which they may ask me?????????
Ambarin Anwar
Very informative article. Its going to be of very great help in my preparations for upcoming interviews.
Shannan Wilson
Tajamul,
Check out our IB Interview Prep Pack Plus for help with your interview. It includes 200+ of the most common technical questions with sample answers and 30 sample behavioral interview questions!
Shannan Wilson
Hi Adefioye,
We offer the Wall Street Prep IB Interview Prep Pack Plus which includes 200+ of the most common technical questions with sample answers and 30 sample behavioral interview questions. We also offer IB Interview Prep Pack Plus
& The Premium Package which Everything in the IB Interview Prep Pack Plus, Complete financial modeling training program and Certification in Financial and Valuation Modeling. I hope this helps!
Shannan
Shannan Wilson
Hi Kamal,
We offer the Wall Street Prep IB Interview Prep Pack Plus which includes 200+ of the most common technical questions with sample answers and 30 sample behavioral interview questions. We also offer IB Interview Prep Pack Plus
& The Premium Package which Everything in the IB Interview Prep Pack Plus, Complete financial modeling training program and Certification in Financial and Valuation Modeling. I hope this helps!
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 really drives the interview.
Awaiting your positive response.
Thanks for your support.
Deewakar Jha
ph-9738337737
Bangalore.
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 study please help me.what can I do please I need your help,you can flash me or send me a text on this number so I can call you back 08141685743,08055535826
Byju Subhash
This was really helpful. Thanks a lot!
Haseeb Chowdhry
Hisham,
Study the core tenets of our valuation courses, work with a friend to mock interview you on technical and fit based questions, and you will be in good shape – good luck!
Haseeb Chowdhry
Akinwunmi,
We periodically update our coursework and will provide you with email notifications. Pertaining to accounting questions that would be common, I would refer to going through the “Accounting Crash Course.”
chaitanya
hi
this is very good.
it is very simple and clear.
thank you
Hisham
dear sir iam going to interview tommorow give me some suggestions how to pass out the interview is about bank related and finance
Jeanica
I really appreciate your answers!! Its very useful!! Thank u!
Haseeb Chowdhry
Glad you liked it!
Kamal
Hi,
Can you provide me resource or database, which contains similar types of questions. Liked these set of questions.
Regards
Haseeb Chowdhry
These are all great suggestions – thanks!
kanthi shanmugamnathan
yes, i enjoyed this article….hope it ll b useful for my interviews……
thank you.
Haseeb Chowdhry
Will do – thanks!
JUN JUN TOLICA
It helps me a lot thank you
Haseeb Chowdhry
Mustaq – I think most of our basic accounting questions are covered within our basic finance questions – thanks!
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 type of question . That is very helpful to us.
Haseeb Chowdhry
Thanks so much!
Haseeb Chowdhry
Thanks Khoshali!
Haseeb Chowdhry
I think we have you on a list that keeps you aware of the upcoming webinars we have – thanks!
Haseeb Chowdhry
Prasanth – keep on checking out our website for updates – thanks!
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!
Haseeb Chowdhry
Thanks!
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
This is very helpful..thank u
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 ..
Haseeb Chowdhry
Awesome thanks!
vinoth Kumar.g
Very useful questions thank you
Surya Tej Singh
Excellent information..it cleared many of my doubts.thank u
rodrick
enjoyed,Thanks
Haseeb Chowdhry
Thanks!
salih
It is very helpful thank you for your effort
Haseeb Chowdhry
Thanks!
mercy
thanks. this was very educative.
shiavm divedi
very important knowledge. thank you sir………
Haseeb Chowdhry
No problem! Thanks!
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
Haseeb Chowdhry
Pawan,
Look at the link I provided on 4/6 – thanks!
Haseeb Chowdhry
Thanks Priya – stay tuned for new and exciting content!
Haseeb Chowdhry
Aks,
Check this link out: http://www.wallstreetprep.com/knowledge/investment-banking-interview/
Haseeb
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 ……….
Haseeb Chowdhry
Ashok,
Try creating question ‘scenarios’ for yourself. Let’s say you have an Apple tree. How can you value that Apple tree? Stuff as simple as that will get you started and will get you to a point where you can explain a DCF very simply to a person. Thanks.
Haseeb
manoj
Financial question and answer is very much useful for me……
k.lalitha
very fantastic article was very informative
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.
Haseeb Chowdhry
Keep on the lookout for newer material – thanks!
Haseeb Chowdhry
Not a problem – enjoy!
name: Bharathi Raja . C
what is the car loan finance simple interview questions sir….? please help me sir…
Haseeb Chowdhry
You’re welcome!
Haseeb Chowdhry
K,
Typically accounting questions that focus on how depreciation flows through the 3 statements, questions on gains/losses on sale, and other general accounting questions that focus on capital raising on the B/S are to be expected.
kalpana
Very nice and useful collection of questions related to accounts and finance. Thanku
swathi
hai its very useful.. can you plz more adding question for experience ppl.
Sultan Ahmed Khan
Thanks
Haseeb Chowdhry
Bharathi,
Can you please elaborate on this question? Thanks!
Kalpana
Thank you so much for your valuable guidence…!
Haseeb Chowdhry
Great to hear! Thanks!
Julius
This was awesome, perfect prep!
Thanks so much.
Haseeb Chowdhry
Not a problem – we will keep them coming!
Sunit Kumar jha
Very valuable information for me.plz more adding question.
Thank You
Haseeb Chowdhry
You should ask questions about the types of work you’ll be doing in the role, the types of projects expected of you to complete, how your managers want to work with you. You also want to get an idea of the culture of the firm – is it collegiate, is there more of an emphasis on face time, etc. You want to get a feel for the firm and people b/c you will spend considerable time there – hope this helps!
Lucy
Hello
Those are very useful and helpful answers.
Thanks.
Haseeb Chowdhry
Great to hear – thanks!
reddy shekar reddy
i want what type of question ask to the companys in the genral
Haseeb Chowdhry
Thanks!
Gayathri.GV
The above questions are really use full.
Haseeb Chowdhry
Thanks!
harish
it’s very use full information if it is possible could u send to my mail id
Haseeb Chowdhry
Harish,
Keep on looking for updates here – take care!
Best,
Haseeb
Isha
Was very helpful. Please keep adding more questions to this. 🙂
MOHAMMED RHISWAN
Very very very useful information. Thank you
esther
hello.
the article is very helpful & useful. thank you. keep it up