Accounting interview questions

Foundational screen. Expect it early in a first round.

Explain the difference between accrual and cash accounting, and why public companies report on an accrual basis. Give an example where the two diverge materially.

Foundational for DCF and LBO modeling; asked across all banking groups.

Where does capex appear on each statement? Distinguish maintenance from growth capex and explain why the split matters in valuation.

A quick screen on whether you actually understand accrual mechanics.

Explain the difference between a prepaid expense and an accrued liability. Give an example of each and the cash flow effect.

Corporate development analysts need this to explain why a deal's accounting profile differs from its cash economics.

After acquiring a business, what is purchase price allocation? Explain goodwill and why the accounting matters to a corporate buyer.

Screening question across banking, corporate finance and credit interviews.

Define working capital and net working capital. What does an increase in net working capital do to cash flow, and what does a negative working capital balance tell you about a business?

Tests whether you can reason from the balance sheet identity rather than recall a rule.

Can a healthy, profitable company have negative shareholders' equity? Explain how it happens and name situations where it isn't a warning sign.

Common in restructuring, credit and corporate banking interviews.

Define the cash conversion cycle and its components. A company's CCC moves from 45 days to 70 days year over year, what would you investigate?

Increasingly common given how many deals involve software and subscription businesses.

A SaaS company collects $120 cash upfront for a 12-month contract on January 1st. Walk me through the accounting at collection and at the end of month one. Why do investors watch deferred revenue?

Bridges accounting and M&A. Expect it in any deal-heavy group.

How is goodwill created in an acquisition? Then walk me through the three statements when $100 of goodwill is written off, assuming a 25% tax rate.

Common in energy, industrials and shipping where asset write-downs are routine.

When must a company impair a long-lived asset, and how does it differ from a goodwill impairment?

A live debate in tech coverage and growth equity. Interviewers want a view, not a recital.

Stock-based compensation is added back as a non-cash expense in most adjusted EBITDA calculations. Do you think that's the right treatment? Defend your position.

Asked in industrials and consumer coverage where inventory accounting materially changes reported earnings.

Explain LIFO and FIFO. In a period of rising prices, which produces higher net income, and which company would you rather own?

A technical coverage question for acquisitions of project-based industrials.

Why can purchase accounting distort the margins of an acquired industrial company with backlog?

Interviewers use this to check whether you know which cash flow belongs in which analysis.

Define unlevered free cash flow, levered free cash flow and free cash flow to the firm as reported by companies. When is each used, and why do the definitions disagree?

Asked in consumer coverage and equity research when promotional investment makes reported revenue diverge from shelf demand.

A packaged-food company invoices retailers $100m at list price, expects $14m of promotional rebates and slotting allowances, and later estimates an additional $3m of retailer claims. What revenue should it recognise,…

The counterpart to the deferred tax asset question, and more commonly asked.

What creates a deferred tax liability? Give the most common cause and explain why a DTL can grow indefinitely without ever being paid.

Treasury candidates are expected to understand why an economically sensible hedge can create reported earnings volatility.

Why does hedge accounting matter to a treasury team? Explain the basic difference between a cash flow hedge and a fair value hedge.

Asked to test whether a candidate uses EBITDA thoughtfully or reflexively.

EBITDA is often used as a proxy for cash flow. Explain why that proxy breaks down, and name the specific items that separate EBITDA from actual free cash flow.

Separates candidates who understand the enterprise value bridge from those who memorised it.

A company owns 70% of Subsidiary A and 30% of Company B. How does each appear in the financials, and what does that mean for enterprise value?

Shows up in M&A and restructuring where NOLs are a material part of deal value.

What creates a deferred tax asset? Explain how net operating losses are valued in an acquisition and what limits their usefulness to a buyer.

Asked when covering multinationals, where FX moves can swamp operating performance.

A US company owns a European subsidiary. The euro weakens 10%. What happens to the consolidated financials?

Asked in retail, restaurant, airline and industrials groups where leases dominate the balance sheet.

Since ASC 842 / IFRS 16, how are operating and finance leases treated? Explain the impact on EBITDA and on leverage metrics, and how you would treat leases when calculating enterprise value.

Asked in technology, media and healthcare coverage groups where contract structures are complex.

Outline the five-step revenue recognition model under ASC 606. Then apply it: a software company sells a three-year licence bundled with implementation services and ongoing support for $300k paid upfront.

Critical in industrials, airlines and any legacy manufacturer.

A company has a $2bn defined benefit obligation and $1.4bn of plan assets. How does this appear in the financials, and how do you treat it in valuation?