Investment Banking –
Accounting Questions
2026 | Study Guide,
Practice Questions,
Answers, Rationales &
Exam Review | Complete
Ethics Study Guide
Updated 2026 Questions and Answers
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Included
, Walk me through the 3 financial statements The 3 major statements are the income statement, balance sheet, cash flow
statement. The income statement has revenue as the top line, subtracts out
expenses, and goes down to net income. The balance sheet shows the companies
assets (resources over time such as cash, inventory, PP&E) and its liabilities (debt
and accounts payable) and its shareholders equity. Assets must equal liabilities plus
shareholder's equity. Cash flow begins with net income and adjusts for non-cash
expenses and changes in operating assets and liabilities, shows how the company
has spent or received cash from investing or financing, and at the end gives the net
change in cash.
Major line items on the income statement Revenue, cost of goods sold, SG&A, operating income, pre-tax income, net income
Major line items on the balance sheet Cash, accounts receivable, inventory, PP&E, accounts payable, accrued expenses,
debt, shareholder's equity
Major line items on the cash flow statement Cash flow from operations, cash flow from investing, cash flow from financing
Cash flow from operations Net income, depreciation & amortization, stock based-compensation, changes in
operating assets & liabilities
Cash flow from investing Capital expenditures, sale of PP&E, sale/purchase of investments
Cash flow from financing Dividends issued, debts raised/paid off, shares issued/repurchased
Which statement would you use to determine the overall Cash flow statement - it gives a true picture of how much cash the company s
health of a company? actually generating
How do the 3 statements flow together? The bottom line of the income statement is net income. Net income links to both the
balance sheet and cash flow statement.
In terms of the balance sheet, net income flows into stockholder's equity via
retained earnings. Retained earnings is equal to the previous period's retained
earnings plus net income from this period less dividends from this period.
In terms of the cash flow statement, net income is the first line as it is used to
calculate cash flows from operations. Also, any non-cash expenses or non-cash
income from the income statement (i.e., depreciation and amortization) flow into the
cash flow statement and adjust net income to arrive at cash flow from operations.
Any balance sheet items that have a cash impact (i.e., working capital, financing,
PP&E, etc.) are linked to the cash flow statement since it is either a source or use of
cash. The net change in cash on the cash flow statement and cash from the
previous period's balance sheet comprise cash for this period.
If you could only use 2 statements to assess a company, Income statement and balance sheet because you can generate the cash flow
which ones would you use? statement from both of these
How can you tell if something is an asset or liability? An asset will result in additional cash in the future, and a liability will result in less
cash in the future
Accounting Questions
2026 | Study Guide,
Practice Questions,
Answers, Rationales &
Exam Review | Complete
Ethics Study Guide
Updated 2026 Questions and Answers
100% Verified Exam Prep and Comprehensive
Rationales
Included
, Walk me through the 3 financial statements The 3 major statements are the income statement, balance sheet, cash flow
statement. The income statement has revenue as the top line, subtracts out
expenses, and goes down to net income. The balance sheet shows the companies
assets (resources over time such as cash, inventory, PP&E) and its liabilities (debt
and accounts payable) and its shareholders equity. Assets must equal liabilities plus
shareholder's equity. Cash flow begins with net income and adjusts for non-cash
expenses and changes in operating assets and liabilities, shows how the company
has spent or received cash from investing or financing, and at the end gives the net
change in cash.
Major line items on the income statement Revenue, cost of goods sold, SG&A, operating income, pre-tax income, net income
Major line items on the balance sheet Cash, accounts receivable, inventory, PP&E, accounts payable, accrued expenses,
debt, shareholder's equity
Major line items on the cash flow statement Cash flow from operations, cash flow from investing, cash flow from financing
Cash flow from operations Net income, depreciation & amortization, stock based-compensation, changes in
operating assets & liabilities
Cash flow from investing Capital expenditures, sale of PP&E, sale/purchase of investments
Cash flow from financing Dividends issued, debts raised/paid off, shares issued/repurchased
Which statement would you use to determine the overall Cash flow statement - it gives a true picture of how much cash the company s
health of a company? actually generating
How do the 3 statements flow together? The bottom line of the income statement is net income. Net income links to both the
balance sheet and cash flow statement.
In terms of the balance sheet, net income flows into stockholder's equity via
retained earnings. Retained earnings is equal to the previous period's retained
earnings plus net income from this period less dividends from this period.
In terms of the cash flow statement, net income is the first line as it is used to
calculate cash flows from operations. Also, any non-cash expenses or non-cash
income from the income statement (i.e., depreciation and amortization) flow into the
cash flow statement and adjust net income to arrive at cash flow from operations.
Any balance sheet items that have a cash impact (i.e., working capital, financing,
PP&E, etc.) are linked to the cash flow statement since it is either a source or use of
cash. The net change in cash on the cash flow statement and cash from the
previous period's balance sheet comprise cash for this period.
If you could only use 2 statements to assess a company, Income statement and balance sheet because you can generate the cash flow
which ones would you use? statement from both of these
How can you tell if something is an asset or liability? An asset will result in additional cash in the future, and a liability will result in less
cash in the future
