IB Accounting Interview Questions: Three-Statement Model & Scenarios

Key takeaways

Accounting questions have correct answers — structure your response using the three-statement linkage
Always apply the tax rate (the £2.5M tax shield at 25% is the most-tested concept)
End every scenario by confirming the balance sheet balances
Non-cash charges (D&A, write-downs) are added back on the CFS — never treat them as cash outflows

Why Accounting Questions Matter

Accounting is the foundation of every IB technical interview. If you cannot walk through the three financial statements and explain how they link, you will not make it past the first round. There is no ambiguity here — these questions have correct answers, and interviewers expect you to deliver them quickly and confidently.

The Three-Statement Linkage

The income statement shows revenue, expenses, and profitability over a period. The balance sheet shows assets, liabilities, and equity at a point in time. The cash flow statement reconciles net income to actual cash movement.

The five critical links Net income flows into retained earnings (BS) and starts the CFS. D&A reduces PP&E (BS) and is added back on the CFS. Capex increases PP&E and appears as an investing outflow. Working capital changes flow through CFO. Ending cash on the CFS equals cash on the BS.

Scenario Walk-Through: Depreciation Increases by £10M

Insider tip This is the single most frequently tested accounting question in IB interviews. Practise until you can deliver this answer in under 60 seconds without hesitation.

Assume a 25% tax rate:

Income Statement EBIT falls by £10M. Tax falls by £2.5M (25% × £10M). Net income falls by £7.5M.

Cash Flow Statement Net income is down £7.5M, but D&A is added back (+£10M). Operating cash flow increases by £2.5M. This is the tax shield — depreciation creates a real cash benefit.

Balance Sheet PP&E falls by £10M (accumulated depreciation increases). Cash increases by £2.5M. Retained earnings falls by £7.5M. Assets change by −£7.5M net; equity changes by −£7.5M. The balance sheet balances.

£2.5M Tax shield created by £10M depreciation at 25% tax rate — this is the key insight interviewers are testing

Scenario Walk-Through: £10M Inventory Write-Down

Statement	Impact
Income Statement	Impairment charge of £10M. At 25% tax, net income falls by £7.5M.
Cash Flow Statement	NI down £7.5M. Write-down added back (+£10M, non-cash). Inventory decline = source of cash in WC. Net cash impact: zero.
Balance Sheet	Inventory −£10M. Retained earnings −£7.5M. Deferred tax asset +£2.5M. Balanced.

Common Follow-Up Questions

"What if the company is loss-making?" — There is no tax benefit. Net income falls by the full £10M, and the tax shield does not apply until the company is profitable again (tax loss carryforward).
"Walk me through a £50M cash acquisition." — No IS impact at acquisition. BS: cash falls £50M, assets acquired increase by fair value, goodwill fills the gap. CFS: investing outflow of £50M.
"What happens when accounts receivable increases?" — Revenue was recognised but cash was not collected. This is a use of cash — operating cash flow decreases.

Three Mistakes That Reveal Weak Candidates

Common mistake #1 Forgetting the tax effect. When depreciation increases by £10M, net income does not fall by £10M. It falls by £7.5M (at 25% tax). The £2.5M tax shield is the entire point of the question.

2. Not checking if the balance sheet balances. After walking through any scenario, always confirm: "Assets changed by X, and liabilities plus equity changed by X. The balance sheet balances." This shows rigour.

3. Treating non-cash charges as cash outflows. Depreciation, amortisation, and write-downs do not involve cash leaving the business. They are added back on the CFS. If you subtract them from cash, your answer is wrong.

The interviewer is not testing whether you know the answer. They are testing whether you can deliver it clearly, quickly, and without hesitation.

Take Your Preparation Further

Download our free Accounting Cheat Sheet for a complete reference covering the three statements, scenario walk-throughs, EBITDA adjustments, and key ratios. For comprehensive interview preparation with model answers across all technical areas, see the IB Interview Bible.

Ready for personalised feedback? Book a 1-on-1 mentoring session with an experienced IB/PE professional.

Investment Banking Accounting Interview Questions: Three-Statement Linkage and Scenario Walk-Throughs