17 IB Accounting Interview Questions + Answers

Practice 17 investment banking accounting interview questions with worked three-statement answers, formulas, assumptions, and common-error checks.

Updated Jul 21, 2026. Reviewed by Ned.

Investment banking accounting questions test whether you can trace a business event through all three financial statements, explain the cash impact, and keep the balance sheet balanced. Start with the depreciation walkthrough below, then practice revenue recognition, working capital, deferred taxes, and goodwill. This guide gives you 17 worked questions plus the assumptions that make each answer correct.

Interactive drill set. Write an answer before revealing the worked solution, then continue into CoachNed for scored practice and AI feedback.

What accounting knowledge do IB interviews actually test?

IB accounting interviews test whether you can trace one transaction or line-item change through all three financial statements and land on a balanced result. Interviewers care less about textbook definitions and more about mechanical fluency: can you move quickly, state assumptions, stay consistent, and explain why the balance sheet balances? A clean answer usually follows income statement → cash flow statement → balance sheet, but no bank publishes one universal question order. For the full baseline walkthrough, see how to walk through the financial statements in an interview and how the three statements link together.

How do the three financial statements link together?

Net income flows from the income statement into the cash flow statement as the starting line, and the cash flow statement's ending cash balance flows onto the balance sheet. Retained earnings on the balance sheet also updates by net income minus dividends. Any non-cash item on the income statement, like depreciation or stock-based compensation, gets added back on the cash flow statement. This closed loop is what interviewers are checking when they ask "walk me through the three statements": they want to see you understand the linkage, not just recite each statement in isolation. See the full income statement, balance sheet, and cash flow statement breakdown for each statement's structure.

Turn the linkage into a technical question set

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If a company records a $5 million revenue sale on credit, what happens?

Assume there is no associated cost of goods sold and ignore taxes first. Revenue and pre-tax income rise by $5 million, but no cash has changed hands, so accounts receivable rises by $5 million. On the cash flow statement, the $5 million increase in net income is offset by the $5 million increase in receivables, leaving cash unchanged. Once the customer pays, receivables fall and cash rises with no new income-statement impact. If the interviewer adds taxes or a product cost, apply those assumptions explicitly rather than pretending the $5 million flows entirely to net income.

What happens when the customer pays that $5 million receivable?

The collection has no new income-statement impact because the revenue was recognized when the sale occurred. Cash flow from operations rises by $5 million as the receivable is collected. On the balance sheet, cash rises by $5 million and accounts receivable falls by $5 million, so total assets do not change. This is the cleanest check that you are not recognizing the same revenue twice.

What happens when a company buys $20 of inventory on credit?

There is no immediate income-statement impact because the inventory has not been sold, and there is no immediate cash-flow impact because the supplier has not been paid. On the balance sheet, inventory rises by $20 and accounts payable rises by $20. When the company later pays the supplier, cash flow from operations falls by $20, cash falls by $20, and accounts payable falls by $20. If the inventory is sold, apply the sale, cost of goods sold, tax, and collection assumptions separately.

Walk me through how $10 of depreciation affects the three statements

Assume a 25% tax rate and an immediately usable tax shield. On the income statement, depreciation expense rises by $10, pre-tax income falls by $10, and net income falls by $7.50 after tax. On the cash flow statement, start with the $7.50 drop in net income, then add back the full $10 because depreciation is non-cash, so cash from operations rises by $2.50. On the balance sheet, net PP&E falls by $10 while cash rises by $2.50, so total assets fall by $7.50. Retained earnings also falls by $7.50, keeping the balance sheet balanced.

What if the company doesn't pay cash taxes that period?

If cash taxes aren't actually paid because the company has a loss carryforward or other tax shield, the same $10 of book depreciation still reduces net income by $7.50 for accounting purposes, but the cash tax savings might be deferred rather than realized immediately. That gap between book tax expense and cash taxes paid is exactly what creates a deferred tax asset or liability, which is the natural follow-up question interviewers ask next.

How would a higher tax rate change the answer?

A higher tax rate makes the net-income decline smaller and the cash tax shield larger, assuming the company can use the shield immediately. At tax rate t, net income falls by $10 × (1 − t) and cash rises by $10 × t. The $10 depreciation add-back itself does not change. If the company cannot realize the tax benefit now, say so and separate the book-tax effect from the current cash-tax effect.

Quiz

If the tax rate rises from 25% to 40% and the depreciation tax shield is immediately usable, what happens to the $10 walkthrough?

• **ANet income falls more and cash rises less.
• **BNet income falls $6 and cash rises $4.
• **CNet income falls $10 and cash does not change.
• **DNothing changes because depreciation is non-cash.

How do changes in working capital affect cash flow?

Working capital, defined here as current assets excluding cash minus current liabilities excluding debt, ties up cash when it rises and frees cash when it falls. An increase in accounts receivable or inventory is a use of cash because the company has spent money or delivered goods without collecting cash yet. An increase in accounts payable is a source of cash because the company is delaying its own payments. In a DCF**, rising net working capital is subtracted from free cash flow every period, which is why a fast-growing but unprofitable-on-cash company can look strong on the income statement while burning cash. See working capital: accrual vs cash accounting explained for the mechanics.

A company's receivables grow faster than its revenue. What does that signal?

Receivables growing faster than revenue signals the company is having trouble collecting from customers, extending more generous payment terms to win business, or possibly recognizing revenue too aggressively. Days sales outstanding, receivables divided by revenue times 365, is the metric to check first. A rising DSO alongside flat or declining revenue growth is a red flag interviewers expect you to name unprompted, since it often precedes a cash crunch even when the income statement still looks healthy.

If inventory rises by $20 with no change in accounts payable, what happens to cash flow?

Inventory is a current asset, so a $20 increase is a $20 use of cash in cash flow from operations. The income statement has no immediate impact merely because inventory was purchased, assuming none of it was sold or written down. On the balance sheet, inventory rises by $20 and cash falls by $20, leaving total assets unchanged. If the company bought the inventory on credit instead, accounts payable would rise too and the immediate cash impact would be zero until payment.

Why can positive net income coexist with negative operating cash flow?

Net income uses accrual accounting, so it can include revenue that has not been collected and exclude cash invested in inventory or other working-capital needs. A fast-growing company may therefore report positive earnings while receivables and inventory consume more cash than the business generates. In an interview, reconcile the gap through working-capital changes and non-cash items rather than saying only that cash and profit are different.

What is a deferred tax liability and how is it created?

A deferred tax liability is a balance-sheet entry representing tax expected to be paid in the future because book and tax accounting recognize income or expenses on different schedules. One common interview scenario is an asset write-up in an acquisition where the book basis rises but the tax basis does not. That mismatch creates a DTL. The precise treatment depends on the deal structure and tax rules, so state the assumed book-versus-tax basis difference before calculating it.

How do you calculate the deferred tax liability from an asset write-up?

The formula is straightforward:

DTL = Asset Write-Up × Tax Rate

If a target's PP&E is written up by $40 million and the tax rate is 25%, the DTL created is $10 million. This DTL then amortizes down over the useful life of the written-up asset, as book and tax depreciation converge back toward each other.

What's the difference between a deferred tax asset and a deferred tax liability?

A deferred tax asset means the company will pay less tax in the future, typically because it has recognized an expense for book purposes before it's deductible for tax purposes, like a net operating loss carryforward or certain accrued liabilities. A deferred tax liability means the company will pay more tax in the future, typically from accelerated tax depreciation or an asset write-up in an M&A deal. Both sit on the balance sheet and both reverse over time as the book-tax timing difference closes.

What is goodwill and where does it come from?

Goodwill is the residual created when the consideration paid in an acquisition exceeds the fair value of the target's identifiable net assets, after the purchase-price allocation. It can reflect expected synergies and other benefits that are not recognized as separate assets. Under the standard US GAAP model, goodwill is tested for impairment rather than amortized; qualifying private companies can elect an accounting alternative that amortizes it. In an interview, state which accounting framework you are assuming.

Walk me through a goodwill impairment of $100 on the three statements

Assume the impairment is not tax-deductible. The income statement records a $100 non-cash expense, so net income falls by $100. The cash flow statement adds the $100 charge back, leaving cash unchanged. On the balance sheet, goodwill falls by $100 and retained earnings falls by $100. If the interviewer says there is a tax benefit, calculate the after-tax net-income and retained-earnings impact separately instead of using this no-tax-shield answer.

Why would a company take a goodwill impairment?

A company takes a goodwill impairment when the business it acquired is worth less than it paid for it, usually signaled by a sustained stock price decline, a missed integration, lost customers, or a downward revision to the unit's projected cash flows. It's a backward-looking accounting cleanup, not a cash event, but it's a signal analysts watch closely because it often means management overpaid or the deal thesis didn't play out.

Which accounting-answer mistakes should you avoid?

The most damaging mistakes are hidden assumptions and answers that do not balance. Use this final check before you finish any walkthrough.

Comparison: how five common line items hit the three statements

Finish with a full accounting mock interview

Answer the walkthroughs aloud, handle follow-up assumptions, and review IB Offer's feedback before you move from accounting into valuation and modeling. The three-day trial requires a card.

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Sources

• Wall Street Prep, Investment Banking Accounting Questions - checked July 2026

• Wall Street Prep, Which Company Should Have a Higher Value - checked July 2026

• Wall Street Prep, Deferred Taxes: Definition and Calculation Example - checked July 2026

• EBIT.dog, Walk Me Through How $10 of Depreciation Affects the Three Financial Statements - checked July 2026

• Corporate Finance Institute, Most Common Finance Interview Questions - checked July 2026