Basic Accounting Questions and Answers 2025
1.What are the 3 major financial statements?: Income Statement,
Balance Sheet, Cash Flow Statement
2.Walk me through the Income Statement: Gives the company's
revenue and expenses, and goes down to Net Income, the final line
on the statement.
3.Walk me through the Balance Sheet: Show the company's Assets
(resources - Cash, Inventory, PP&E), Liabilities (Debt and Accounts
Payable), and Shareholders' Equity.
Assets must equal Liabilities plus Shareholders' Equity.
4.Walk me through the Cash Flow Statement: Begins with Net Income,
adjusts for non-cash expenses and working capital changes, and then
lists cash flow from investing and financing activities; at the end, you
see the company's net change in cash.
5.IS major Line items: Revenue, COGS, SG&A, Operating Income,
Pretax In- come, Net Income
6.BS major line items: Cash, Accounts Receivable, Inventory, PP&E,
Accounts Payable, Accrued Expenses, Debt, Shareholders' Equity
7.CFS major line items: Net Income, Depreciation & Amortization, Stock-
Based Compensation, Changes in Operating Assets & Liabilities, Cash
Flow From Oper- ations, CapEx, Cash Flow from Investing,
Sale/Purchase of Securities, Dividends Issued, Cash Flow from
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, Financing
8.How do the 3 statements link together?: - Net Income from the IS flows
into Shareholders' Equity on the Balance Sheet, and into the top line of
the Cash Flow Statement
- Changes to BS items appear as working capital changes on the CFS.
Investing and Financing activities affect BS items such as PP&E, Debt
and Shareholders' Equity
- Cash and Shareholders' Equity items on BS act as plugs, with Cash
flowing in from the final line on the CFS
9.If I wanted to review the overall health of a company and only had
one statement, which statement would I use and why?: Use the CFS
- gives the true picture of how much cash the company is generating,
independent of non-cash expenses.
- cash flow is the number one concern when analyzing the overall
health of a business
10.I could only use 2 statements - which 2?: - Income Statement and
Balance Sheet
- Can create the Cash Flow Statement from both (as long as you have a
before and after BS for the period the IS is tracking)
11.Walk me through how Depreciation going up by $10 would affect the
statements.: IS: Operating income down by $10, Net Income down by $6
(40% tax
rate)
CFS: NI down by $6, but $10 is non-cash and gets added back -> CFO
goes up by
2/
12
1.What are the 3 major financial statements?: Income Statement,
Balance Sheet, Cash Flow Statement
2.Walk me through the Income Statement: Gives the company's
revenue and expenses, and goes down to Net Income, the final line
on the statement.
3.Walk me through the Balance Sheet: Show the company's Assets
(resources - Cash, Inventory, PP&E), Liabilities (Debt and Accounts
Payable), and Shareholders' Equity.
Assets must equal Liabilities plus Shareholders' Equity.
4.Walk me through the Cash Flow Statement: Begins with Net Income,
adjusts for non-cash expenses and working capital changes, and then
lists cash flow from investing and financing activities; at the end, you
see the company's net change in cash.
5.IS major Line items: Revenue, COGS, SG&A, Operating Income,
Pretax In- come, Net Income
6.BS major line items: Cash, Accounts Receivable, Inventory, PP&E,
Accounts Payable, Accrued Expenses, Debt, Shareholders' Equity
7.CFS major line items: Net Income, Depreciation & Amortization, Stock-
Based Compensation, Changes in Operating Assets & Liabilities, Cash
Flow From Oper- ations, CapEx, Cash Flow from Investing,
Sale/Purchase of Securities, Dividends Issued, Cash Flow from
1/
12
, Financing
8.How do the 3 statements link together?: - Net Income from the IS flows
into Shareholders' Equity on the Balance Sheet, and into the top line of
the Cash Flow Statement
- Changes to BS items appear as working capital changes on the CFS.
Investing and Financing activities affect BS items such as PP&E, Debt
and Shareholders' Equity
- Cash and Shareholders' Equity items on BS act as plugs, with Cash
flowing in from the final line on the CFS
9.If I wanted to review the overall health of a company and only had
one statement, which statement would I use and why?: Use the CFS
- gives the true picture of how much cash the company is generating,
independent of non-cash expenses.
- cash flow is the number one concern when analyzing the overall
health of a business
10.I could only use 2 statements - which 2?: - Income Statement and
Balance Sheet
- Can create the Cash Flow Statement from both (as long as you have a
before and after BS for the period the IS is tracking)
11.Walk me through how Depreciation going up by $10 would affect the
statements.: IS: Operating income down by $10, Net Income down by $6
(40% tax
rate)
CFS: NI down by $6, but $10 is non-cash and gets added back -> CFO
goes up by
2/
12
